Description
The present information was originally filed by the All India
Tyre Dealers’ Federation (AITDF) against the tyre manufacturers
before the Ministry of Corporate Affairs and the same was
forwarded by the Ministry to the MRTP Commission (MRTPC).
Consequent upon the repeal of the MRTP Act, the matter stood
transferred to the Competition Commission of India (Commission)
under section 66 (6) of the Competition Act, 2002 (‘the Act’).
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COMPETITION COMMISSION OF INDIA
MRTP Case: RTPE No. 20 of 2008
Date: 30.10.2012
In re:
All India Tyre Dealers’ Federation Informant
vs.
Tyre Manufacturers Opposite Parties
Present:
(i) Shri S P Singh convenor, AITDF
(ii) Shri K Venugopal, Sr. Advocate and Shri AdityaNarain Adv.
for M/s J K Tyres & Industries Limited
(iii) Shri Manas Chaudhuri, Adv. for M/s Ceat Ltd.
(iv) Shri A N Haskar, Sr. Adv. and Shri AdityaNarain, Adv. for
M/s MRF Ltd.
(v) Ms. Pallavi Shroff, Adv. and Shri Harman Singh Sandhu for
M/s Apollo Tyres Ltd.
(vi) Shri A.N.Haskar, Sr. Adv. and Shri AdityaNarain, Adv. for
M/s Goodyear India Ltd.
(vii)Shri Pinaki Addy, Adv. for M/s Kesoram Industries Ltd.
(viii)Shri Amitabh Kumar and Shri Gautam Shahi, Advocates
for M/s Michelin India Tyres Pvt. Ltd.
(ix) Shri RaviSekhar Nair and Ms.Nidhi Singh, Advocates for
ATMA
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Order under section 27 of The Competition Act,2002
Factual Background
1. The present information was originally filed by the All India
Tyre Dealers’ Federation (AITDF) against the tyre manufacturers
before the Ministry of Corporate Affairs and the same was
forwarded by the Ministry to the MRTP Commission (MRTPC).
Consequent upon the repeal of the MRTP Act, the matter stood
transferred to the Competition Commission of India (Commission)
under section 66 (6) of the Competition Act, 2002 (‘the Act’).
2. In the said information dated 28.12.2007, AITDF alleged
that the tyre manufacturers were indulging in anti-competitive
activities. In the information, statements of Ministers of Finance
and Corporate Affairs were quoted to indicate that the Ministers
were also aware about the behaviour of the tyre manufacturers.
3. It was alleged that the domestic tyre industry was the best
example of indulgence in the anti-competitive activities and
resorting to trade mal-practices. The tyre trade has been reeling
under this exploitativebehaviour of thesehandfulofdomestic tyre
majors. The domestic tyre industry, operating at 95%-100%
capacity, on the back of almost 25% annual growthin commercial
vehicle population in last four-five years, has been working in
unison and usurping the excise duty reduction contrary to the
interest of tyre users.
4. The AITDF alleged that since independence, the behaviour
of domestic tyre majors has been anti-competitive, anti-consumer
and they have been indulging in various pricing and trade mal-
practices, which had direct bearing on the revenue of the state
exchequer. The tyre majors are having history of restrictive trade
practices and even 35 years back the MRTP Commission had
passed its first ‘cease and desist’ order against the cartelization
by domestic tyre industry in October 1974. Hence, domestic tyre
industry has the ‘distinction’ of being indulgent in restrictive
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trade practices in the market and as a consequence creating
chasm among the dealers creating a ‘creamy layer’ within the
tyre trade and generally exploiting the tyre user by price rigging
and strangulation of production and supplies. AITDF also alleged
that the truck and bus operators are not the only victim of their
machination, but also the vehicle manufacturers like Tata Motors
have been exploited in recent past by the domestic tyre majors.
5. The AITDF submitted that they have been continuously
feeding the concerned Central Ministries about the anti-trade,
anti-consumer and restrictive trade practices of domestic tyre
majors. The AITDF also approached the Competition Commission
of India regarding the anti-competitive behaviour of domestic tyre
majors vide letter dated 09.06.2007.
6. Following the receipt of the information, the erstwhile MRTP
Commission ordered an investigation into the matter. From the
record, it appears that as the DG (I&R) could not complete the
investigationwhen the MRTP Act, 1969was repealed,the matter
was transferred to the Commission.
Prima Facie Opinion
7. The Commission considered the matter in its meeting andon
perusal of the material on record and after giving thoughtful
consideration to all the facts and circumstances of the case,
passed an order dated 22.06.2010 under section 26(1) of the Act
directing the Director General (‘DG’) to conduct an investigation
into the matter and submit a report. The order of the Commission
specifically mentioned the five major domestic tyre
manufacturing companiesviz. Apollo Tyres Limited, MRF Ltd.,
Ceat Tyre Ltd., Birla Tyre Ltd. and JK Tyre Ltd.
Investigation and Findings of DG Report
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8. In pursuance of the direction of the Commission, the DG
conducted the investigation into the matter and submitted his
investigation report to the Commission.
9. During the course of the investigation, the DG issued
notices to the following tyre manufacturers to seek information
and to collect data:
(i) J K Tyre & Industries Ltd. (J K Tyre)
(ii) Apollo Tyres Ltd. (Apollo)
(iii) Birla Tyres (Unit of Kesoram Industries Ltd.)
(iv) Ceat Tyre Ltd. (CEAT)
(v) MRF Tyres Ltd. (MRF)
(vi) Dunlop India Limited (Dunlop)
(vii) Goodyear India Ltd. (Goodyear)
(viii) Bridgestone India Private Limited (Bridgestone)
(ix) Michelin India Tyres Pvt. Ltd. (Michelin)
10. Besides, the information was also collected from Original
Equipment Manufacturers (OEMs), AITDF and Automotive Tyre
Manufacturers’ Association (ATMA).
11. A brief summary of the replies/information submitted by
the tyre manufacturers to the DG is noted below:
J K Tyre & Industries Ltd. (‘J K Tyre’)
12. J K Tyre stated that it is engaged in the manufacturing and
selling of tyres produced at the factories located in different parts
of the country. It also stated that it imports tyres (Bias/Radial)
for the purpose of testing, product evaluation, benchmarking etc.
It further stated that it sells its products in different parts of the
country through dealers and it does not enter into any written
agreement with the dealers and goods are supplied to dealers
under invoice which contains the terms and conditions of the
sale. It was averred in the reply that natural rubber is procured
domestically or through imports on daily basis. It also stated
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that the selling price is dependent on demand & supply, cost of
production, competitive position of the company etc. It was
submitted that the ex-factory price comprises of cost of
production and the selling expenses. It was further stated that
the OEMs are the bulk buyers and are in a position to dictate the
prices based on purchase orders. It was stated that theprices
dictated by the OEMs are arbitrary. It was also submitted that in
comparison to the replacement market prices, the tyres are sold
at a loss or marginal profit to OEMs.
13. It also provided the actual and the installed capacity details
and the same are noted below:
(Nos. in Lakhs)
Year Installed
Capacity
(Qty in Nos.)
Actual
Production
(Qty in Nos.)
Utilization % % Increase/
decrease from previous
year
2002-03 56.56 49.59 87.7% 13.3%
2003-04 60.55 53.96 89.1% 8.8%
2004-05 62.96 56.15 89.2% 4.1%
2005-06 62.96 63.61 101.0% 13.3%
2006-07 75.98 70.33 92.6% 10.6%
2007-08 87.00 75.26 86.5% 7.0%
2008-09 87.93 74.86 85.1% -0.5%
2009-10 91.44 79.31 86.7% 5.9%
Apollo Tyres Ltd. (Apollo)
14. It was stated in the reply that Apollo sells tyres/tubes on a
principal to principal basis to the dealers who, in turn, sell the
same to the customer/end user. It was also stated that no sole
selling agent/distributor/stockist is appointed for marketing the
products. It was further averred that Apollo does not enter into
any written agreement with the dealers and the business
conditions are governed by the terms and conditions set on the
reverse side of the invoice. It was also stated that the price
determination depends upon the various factors, viz., desired
market share, desired product positioning, strategic intent of the
products, cost inputs for the products, target return on
investment and financial fluctuations etc. Further, it was stated
in the reply that the cost of production includes raw material
cost, conversion cost, power, steam/air, direct wages, salaries,
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repair& maintenance, R&D, plant depreciation and other factory
overheads etc. It was stated that Apollo procures natural rubber
from dealers on daily basis at the prevailing market rates
15. Itprovided details of the actual tyre production, installed
capacity and the utilized capacity. The same are noted below:
Capacity Utilization
(Nos.in Lakhs)
Parti culars Installed Capacity
(Qty in Nos.)
Actual Production
(Qty in Nos.)
Utilization % % increase/decrease
from previous year
(over actual
production)
2005-06 79.34 70.29 89% 18%
2006-07 88.22 78.41 89% 12%
2007-08 96.59 88.67 92% 13%
2008-09 98.96 85.92 87% -3%
2009-10 131.53 105.28 80% 23%
16. It also submitted details of the truck/bus tyre production
and the export for the period 2005-2010. The same is quoted
below for ready reference:
Production and Export
(Nos. in Lacs)
Year Production
(Qty)
Export
(Qty)
Truck Bus bias Truck bus radi al Truck Bus bias Truck bus radi al
2005-06 31.76 - 4.62 -
2006-07 33.20 0.06 4.35 -
2007-08 35.42 0.35 4.23 -
2008-09 32.17 0.68 3.61 -
2009-10 37.44 0.81 3.25 -
17. It further provided details of cost of production for the above
mentioned two segments of tyres. The same is shown below:
Year Cost of Production – Per Unit
10.00-2016 Amar (in ) 10.00-2016XT-
7(in )
2005-06 4674 5144
2006-07 5343 5998
2007-08 5184 5718
7
2008-09 6206 6612
2009-10 6047 6356
Birla Tyres (Unit of Kesoram Industries Ltd.)
18. It was stated in the reply that Birla Tyres produces truck
and bus tyres, LCV and passenger car tyres by using state of the
art machineries and the latest technology. It was stated that Birla
Tyres is continuously increasing the capacity outlay to increase
the installed capacity and its capacity utilization has improved
from 93.62% in 2004-05 to 104.57% in 2009-10. It was further
stated that the raw materials constitute 85% of the total cost of
production. It was stated that raw material prices are directly
influenced by prices of rubber and crude oil. Further, it was
stated that Birla Tyres procures natural rubber from rubber
dealers on daily basis as per the requirements. Prices of natural
rubber are stated to be volatile. It was also stated that Birla
Tyres is continuously decreasing the supplies to the export
market in terms of percentage of total production.
19. The year wise capacity utilization details, as provided, are
shown below:
(No. of Tyres in lakhs)
Year Installed
Capacity(Qty)
(Truck Tyres)
Actual
Production(Qty)
(Truck Tyres)
Utilization %
(Truck Tyres)
2004-05 10,66 9.98 93.62
2005-06 11.66 10.58 90.74
2006-07 13.08 11.75 89.83
2007-08 14.58 14.24 97.67
2008-09 13.80 11.26 81.59
2009-10 13.80 14.43 104.57
Increase% age 29.46 4.59
20. It wasfurthersubmitted that the raw material constituted
85% of cost of production. Raw material prices are directly hit by
prices of rubber and crude oil on which are dependent other
major raw materials such as Synthetic Rubber, Carbon Black
and Tyre Cord Fabric. It further submitted that it procures
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natural rubber from rubber dealers on daily basis based on its
requirements. The prices of natural rubber are volatile and
fluctuate on daily basis. It submitted the major price increase of
essential raw material over last 6 years as shown below:
(Rs. /Kg)
% of total
RM
consumption
2004-
05
( /Kg)
2005-
06
( /Kg)
2006-
07
( /Kg)
2007-
08
( /Kg)
2008-
09
( /Kg)
2009-
10
( /Kg)
% increase
from 2004-
05
Natural
Rubber
42.05 65.82 69.73 95.41 97.24 117.82 110.90 68.49
Synthetic
Rubber
12.06 81.26 100.60 101.03 100.46 159.38 136.46 67.93
Carbon
Black
11.04 28.41 32.78 41.74 40.07 54.09 53.02 86.62
Fabric 20.01 170.14 196.54 178.08 171.24 215.84 218.26 28.29
Total 85.16 50.06
21. With regard to the production and export, Birla tyres
submitted that it is continuously decreasing the supplies to the
export market in terms of percentage of total production.
(No. of tyres)
CEAT Ltd. (CEAT)
22. It was stated in the reply that CEAT is engaged in the
manufacture of tyres, tubes and flaps. The actual production,
capacity utilization details for the period 2005-2010 were
provided and the same are noted below:
Capacity Utilization
Year Plant Installed
Capacity
Actual
Production
Utilization (%) %
Increase/decrease
from previous year
2005-06 Nasik 4,310,930 3,864,051 90%
2006-07 Nasik 4,310,930 3,925,091 91% 1%
2004-05 % of
prod
2005-06 % of
prod
2006-07 % of
prod
2007-08 % of
prod
2008-09 % of
prod
2009-10 % of
prod
Product
ion
1524363 1533451 1674147 1933172 2419916 4498207
Export 452223 29 471477 30 503461 30 498344 25 465656 19 692526 15
9
2007-08 Nasik 4,542,220 3,768,703 83% -8%
2008-09 Nasik 4,542,220 3,411,444 75% -8%
2009-10 Nasik 4,726,048 3,820,647 81% 6%
23. It was submitted that CEAT has established a network of
sales offices across India and it sells the goods on principal to
principal basis to the major customers, viz., government
accounts, fleet accounts, state transport undertakings, vehicle
manufacturers and to over 3000 dealers in different parts of the
country who, in turn, sell the same to the consumers. It also
stated that these dealers also sell the competitors’ products and
CEAT does not enter into any agreement for the sale of its
products with the dealers and the supplies are effected under an
invoice which contains the terms and conditions. CEAT
submitted that for manufacturing tyres/tubes it uses basic raw
materials, viz., natural rubber, synthetic rubber etc. The raw
material prices fluctuate on day to day basis with changes in
crude oil prices, foreign exchange rates, international raw
material prices etc. Pricing of the products was stated to depend
upon raw material prices, landed price of competitive products
(imported), demand & supply in the country and abroad. Natural
rubber is stated to be the most important raw material required
for manufacture of tyres.
24. With regard to the tyre production, quantity exported and
imported, the details, as provided, are shown below:
Year Total production Qty. exported of the total production
Bias Radial Bias Radial
2005-06 1,771,797 0 495,896 0
2006-07 1,820,828 0 385,068 0
2007-08 1,875,991 0 485,964 0
2008-09 1,737,233 0 340,170 0
2009-10 1,958,922 0 364,233 0
25. Thedetailsof the importsprovided by CEAT for the period
2005-2010 are shown below:
Import
Year Bias Radi al
10
Replacement
Market (Nos.)
Original
Equipment
Manufacturer
(Nos.)
Replacement
Market (Nos.)
Original
Equipment
Manufacturer
(Nos.)
2005-06 24,997 0 3,826 0
2006-07 33,876 0 6,891 0
2007-08 42,222 0 13,917 0
2008-09 19,217 0 30,667 0
2009-10 25,059 0 29,377 0
MRF Tyres Ltd. (MRF)
26. In its reply, MRF has stated that it manufactures and sells
all categories of tyres and tubes used in automobiles. Details of
capacity utilization, asprovided, areshown below:
27. It was stated in the reply that it sells its products to OEMs,
STUs, the replacement market, export market etc. MRF in the
reply stated that it procures natural rubber from around forty
dealers on daily basis. It was also stated that MRF has no formal
contract for purchase of natural rubber. Additionally, it was
stated in the reply that natural rubber is imported from various
countries and the price is fixed and payment is made in US dollar
terms.MRF has also stated in the reply that it does not import
tyres/tubes. It was admitted by MRF that it is a member of
ATMA. However, it denied any discussion relating to the issue of
price rise at the meetings of the association.
Installed Capacity Actual Production
Year Bias Radial Total Bias Radial Total Utilizati
on %
% Increase/
Decrease
from
previous year
2005-06 2973333 233333 3206666 2329968 65268 2395236 74.7
2006-07 3192223 168000 3360223 2597438 66170 2663608 79.27 4.57
2007-08 3095540 197502 3293042 2611930 92803 2704733 82.13 2.86
2008-09 3068889 286458 3355347 2630853 81932 2712785 80.85 -1.28
2009-10 3235052 334105 3569157 2957026 220795 3177821 89.04 8.19
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28. The details relating to total production of Truck/Bus (both
Bias & Radial) tyres for the years 2005-06 to 2009-10 and
quantity exported were provided and the same are noted below:
Production and Export
Year Total Production Qty Exported of the total Production
Bias Radial
Bias Radial
2005-06 2329968 65268 419760 55020
2006-07 2597438 6170 440453 41443
2007-08 2611930 92803 402294 34182
2008-09 2630853 81932 347754 20562
2009-10 2957026 220795 424142
Dunlop India Limited (Dunlop)
29. In the reply, Dunlop stated that it has manufacturing
facilities in West Bengal and Tamil Nadu and both these units
were stated to be under the management of Chabria Group till
2005. These units were subsequently stated to be taken over by
the new managementi.e.Ruia Group in December, 2005, but the
operations remainedsuspended till 2008 and thus there were no
manufacturing operations in the market from 1998 to 2008 and
the production and sale was negligible in comparison to the
Indian tyre industry. It was also stated that Dunlop is not
member of any tyre related association. Details of capacity
utilization of the plants were also provided in the reply. Further,
it was stated that market share of Dunlop is negligible and the
import of tyres is nil and the export was also stated to be very
negligible.
Goodyear India Limited (Goodyear)
30. In the reply it was stated that Goodyear sells its products in
India on principal to principal basis. The products are stated to
be sold through dealers and the business dealings are stated to
be governed by the terms and conditions of the invoice. Details
relating to actual production, installed capacity, utilization
percentage were also supplied in the reply. Further, details of
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production and exports were also provided. It was stated by
Goodyear that it was asked to provide details by the Competition
Commission of South Africa. However, it maintained that the said
action/proceeding is wholly irrelevant for its business operations
in India.
Bridgestone India Pvt. Ltd. (Bridgestone)
31. It was stated in the reply that the core business of the
company comprises manufacture and marketing of steel belted
passenger vehicle radial tyres as also import and marketing of
truck and bus radial tyres. It was stated that the company is not
involved in manufacturing of truck and bus tyres (radial or bias)
in India. It was further stated that the company does not
manufacture any kind of truck/bus radial tyres in India but it
imports the same from the Bridgestone group companies from
Japan and Thailand for sale in India. It was also stated that the
company is not involved in manufacturing or
importing/marketing/trading of bias tyres in India and it was
stated that the company is only in the business of radial tyres.
The company is stated to be member of ATMA since 2007 and it
was stated that during the meetings of the association various
issues concerning the tyre industry viz. import license,
mandatory BIS certification on tyres and tubes, availability and
increase in price of natural rubber, recommendation to the
Government for allowing import of natural rubber at concessional
duty, reduction of import duty on natural rubber etc. were
discussed. Further, it was stated that the Ministry of Finance
vide its notification dated 19.02.2010 has imposed antidumping
duty on the radial tyres used in buses and lorries/trucks
originating in, or exported from Thailand and China. Lastly, it
was stated that the investigation conducted by the South Africa
Competition Commission against Bridgestone South Africa (Pty
Ltd.) has no connection with Bridgestone India Pvt. Ltd. as both
the companies are independent entities and carry out their
business operations independently.
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Michelin India Tyres Pvt. Ltd. (‘Michelin’)
32. In the reply, it was stated that the company is not engaged
in the manufacture of tyres. It was stated that the company
imports and sells tyres in India which are manufactured by its
affiliate companies outside India. It was further stated that the
company markets tyres in India through dealers. It was also
stated that the company imports tyres for two wheelers, earth
movers, buses and trucks. Details of the imports were also
supplied by the company.
33. Besides, the DG also collected information from ATMA and
OEMs and a brief resume thereof is noted below:
All India Tyre Manufacturers’ Association (ATMA)
34. ATMA is stated to be an association of the domestic tyre
manufacturers. ATMA submitted that it is registered as a section
25 company under the Companies Act, 1956. It was stated by
ATMA in the reply that it has never been associated with or
interfered with the day to day operational activities and freedom
of its member companies. It also stated that it was never
involved in the affairs of any individual company and it has never
provided its members with any platform for carrying out any
activity which is unlawful or illegal or in contravention of any law
for the time being in force including the Competition Act, 2002.
Original Equipment Manufacturers (OEMs)
35. Information relating to import and pricing was collected by
the DG from the major OEMs, viz. Tata Motors, Ashok Leyland
and Eicher Motors (V E Commercial).It is noted from the
information supplied that OEMs procure tyres from domestic tyre
manufacturers and also import from various countries based on
their requirement. The DG also noted that OEMs too are
dependent on the supply of tyres from the domestic tyre
manufacturers.
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36. During the course of investigation the DG analysed the data
for the reference period i.e. 2005-2010 collected from the five
major domestic tyre manufacturers (Apollo, MRF, J K Tyre, Birla
and CEAT). At the outset, it is noted that, for the purposes of the
present investigation, the DG, considering the commercial utility
of truck and bus tyre segment in transportation and public
importance at large, took into consideration the truck and bus
tyres both cross (or bias) and radial. However, with regard to the
specific and detailed study on cost of production, ex-factory price,
price parallelismetc.,thebias tyres were taken into consideration
for investigation as this segment was generating major chunk of
revenue.
37. Besides, the DG also made a detailed reference to the
secondary documents to corroborate the above findings as these
documents also reflected the conduct of the domestic tyre
manufacturers. In this connection, the DG has referred to the
reports (phase-I, 1985 and Phase-II, 1988) of the studies
conducted by the Bureau of Industrial Costs and Prices (BICP),
Ministry of Industry; Market study on Tyre Industry conducted
by the Jawaharlal Nehru University (2007); final findings dated
29.06.2007 pursuant to the anti-dumping investigation
concerning imports of Bias Tyres originating in or exported from
China PR and Thailand and final findings dated 01.01.2010
pursuant to the anti-dumping investigation involving import of
Bus and Truck Radial Tyres, originating in or exported from
China PR and Thailand of the Designated Authority, Directorate
General of Anti-Dumping& Allied Duties, Department of
Commerce, Ministry of Commerce & Industry, respectively.
38. The DG also examined the conduct of Automotive Tyre
Manufacturers’ Association (ATMA). The DG on examination of
the minutes of the meetings held from 2005-2010 noted that the
members of the association collectively tried to resolve the
common issues which were affecting the domestic tyre
manufacturers adversely. It was also noted that the domestic tyre
manufacturers were facing stiff competition from the importers.
15
The members of ATMA collectively adopted the various courses of
action to protect themselves in this regard viz. by filing of Anti-
Dumping Duty petition, by devising low cost tyre strategy, by
black listing of importers, by discussing issues on export
realizations and by deliberating the issue of unremunerative
prices of tyres supplied to OEMs in various meetings.
Price Analysis
39. The price data for the period of 2005-2010 of domestic tyre
manufacturing companiesviz. MRF, J.K. Tyre, Birla, Ceat& Apollo
was analysed.
40. It was noted by the DG that the major components which
affect the prices of tyres are the cost of natural rubber and the
excise duty. It was noted that the excise duty over the
investigation period has gone down from 16% to 10%.
41. With respect to another component viz. natural rubber, it
was noted that the tyre industry is highly dependent on it which
accounts for 43% of the tyre production cost. Natural Rubber is
procured by domestic tyre manufacturers on daily basis and the
price of natural rubber fluctuates on daily basis. The weighted
average price of the natural rubber during the reference period
was noted and analyzed.
42. Based on the analysis, it was concluded by the DG that
during the investigation period, excise duty has shown a
downward trend and the natural rubber has increased in 2008
but has fallen in 2009 and then again increased in 2010. It was
noted that during the investigation period the net dealer prices of
all the domestic tyre players have continuously increased except
in 2009 wherein a limited decline in prices was observed.
43. Accordingly, the DG noted that these tyre companies have
not passed on the benefit of reduction in excise duty to the
consumers. To buttress the conclusion, reliance was also placed
on the Tariff Commission findings on Tyre Industry.
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44. To examine the price movement for the specific Lug Tyre
segment of the five domestic tyre manufacturers under
investigation, the DG analysed the weighted average of the net
dealer price.
45. By analyzing the said data, it was concluded by the DGthat
the net dealer price (weighted average) of lug tyre in respect of all
the companies was more or less the same with marginal
difference in their price except Apollo tyre.
46. Further, it was noted that the movement of net dealer price
(weighted average) in terms of actual quantum as also % change
was also found to be similar. It was also noted that the % change
of net dealer price whether upward or downward was showing
close correlation amongst the five tyres manufacturing
companies.
47. Based on the above analysis, it was observed by the DG that
price parallelism existed amongst the fivemajortyre
manufacturing companies which is a good measure/indicator to
show that some kind of information sharing in price had taken
place amongst them.
48. Further, the DG, after finding price parallelism amongst the
five tyre manufacturers, proceeded to analyze the plus factors. In
this regard, the DG made elaborate analysis of data relating to
production; capacity utilization; cost analysis; cost of sales/sales
realization/margin; cost of production and natural price
movement; net dealer price & margin and market share, the
same may also be noted.
Production and Net Dealer Price Analysis
49. The DG examined the relation between the actual
production and net dealer price (weighted average) of Lug Tyres of
the five domestic tyre companies.
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50. Onexamination of the above, the DG noted that the actual
production of domestic tyre companies has increased except
during the year 2008-09. Further, the same was collated with the
net dealer price (weighted average) change and concluded that
there was a decline of 3% to 20% in actual production of the
domestic tyre companies. It was, however, pointed out that the
corresponding decline in net dealer price was only between 3% -
5% which implied that the companies have not reduced the net
dealer price (weighted price) in proportion to the actual
production.
Capacity Utilization Analysis
51. The DG also examined the capacity utilization of all the 5
major domestic tyre manufacturing companies.
52. It was noted by the DG that the overall capacity utilization
of the tyre manufacturers has been showing a downward trend
and the utilized capacity has dropped down in the case of
companies viz. Apollo, Ceat and J.K.Tyre except MRF & Birla
from 2005 to 2010. In the case of Birla, the variations in capacity
utilization were noted as very high as it dropped from around
97% to 81% in the year 2008-09 and then drastically increased
from 81% to 104% in the year 2009-10.In J.K. Tyre, a drastic
decline in the capacity utilization was noted during the entire
investigation period which reflects under-utilization of capacity.
53. From the above analysis, it was inferred by the DG that
these companies were not utilizing their capacity in full thereby
resulting in limiting the supply.
Cost of Sales, Sales Realization and Margin
54. The DG made a detailed analysis of cost of sales, sales
realization and margin. It was noted that sales include cost of
production, selling and distribution cost, administrative
overheads, advertisement etc. Sales realization is the amount
18
received on sale of each unit. Margin indicates the profit or loss
realized on sale of the product. The analysis was done to get an
idea about the profitability or otherwise of sale of each product.
55. Based on the analysis,it was concluded by the DG
thatmargins for Apollo Tyres have been showing a very healthy
trend and it has reached the highest in year 2009-10. In the case
of JK Tyres, the margin has been improving and has gone up
drastically. The margin, which was 76 during 2008-09, has
gone up to 617 in year 2009-10 which is more than 8 times
compared to previous year. In the case of MRF, the margins have
shown significant improvement in the year 2008-09 and have
further improved in 2009-10.As regards Ceat, it was noted that it
has been able to reduce the negative margin from 802 to 216
in year 2009-10. Birla tyres has shown lower margin for 2009-10
compared to previous year.
56. It was further noted that the cost of sales showed increasing
trend year after year and there has been sharp increase during
2008-09 in almost all the companies which could be due to
increase in the price of natural rubber. Accordingly, the DG
concluded that the companies have the motive of making profit
and hence have been able to earn positive margins in most of the
period in the 5 years.
Analysis of cost of production and natural rubber price movement
57. The DG also conducted a detailed analysis of cost of
production and natural rubber price movement. It was noted that
natural rubber is one of the major components in the cost of
production of tyres. Therefore, examination of the relation and
corresponding movement of cost of production and natural
rubber was undertaken by the DG. The weighted average of cost
of production and natural rubber during the investigation period
was taken for the five domestic tyre manufactures.
19
58. From the analysis of percentage change in the price of
natural rubber vis-à-vis the percentage change in cost of
production in respect of all five domestic tyre companies, the
following findings were recorded:
(i) In the case of J.K.Tyre, MRF and Birla the price
change of natural rubber dropped from 2009 to 2010
showing a reduction of 10% whereas the cost of
production in all these companies increased
substantially, which was contrary to natural market
forces. No satisfactory explanation to such increase in
cost of production from 2009 to 2010 despite
substantial reduction in price of Natural Rubber
wasavailable on record. In fact, in the case of Birla
Tyres and MRF Tyres there is an increase of 22.8% and
41% respectively as against the decline in price by 10%
in Natural Rubber.
(ii) In cases of Apollo Tyres and Ceat, the rate of
percentage change in the price of Natural Rubber from
2009 to 2010 does not show the corresponding rate of
change in the cost of production. Thus where the
percentage change of Natural Rubber price was at
10.5% these two companies have shown a decline of
3% and 3.8% respectively in their cost of production.
(iii) The analysis therefore shows that the tyre
companies have been inflating some miscellaneous
expenses into the cost of production to reduce their net
profit margins. Similarly, the analysis also explains
that the change in price of natural rubber has no
impact on the cost of production and therefore, it does
not explain the possible reason for the increase in price
of tyres by these companies.
20
Analysis of Net Dealer Price and Margin
59. The DG also conducted the analysis of the Net Dealer Price
(Weighted average) of Lug truck tyres vis-à-vis the margin of each
of the five domestic companies under investigation.
60. It was noted by the DG that the analysis of the Net Dealer
Price (Weighted average) of Lug truck tyres vis-à-vis the margin of
each of the five domestic companies under investigation showed a
significant increase in margins from 2006-2010. Thus, it was
concluded that all the companies have been operating on high
margins barring some exceptions as highlighted in the tabulated
data. It was also noted that the margins have increased from
42.04 to 617.92 in the case of J.K. Tyre which is an increase of
almost 15 times in a short span of 4 years. Similarly, in the case
of Apollo Tyres the margins have almost doubled in the last four
years. In view of the above analysis, the DG noted that these
domestic tyre manufacturers have been operating on large
margins.
Market Share
61. A comparative study of the market share was undertaken
for the domestic tyre manufactures.
62. It was noted by the DG that the market share of Apollo
remained consistent at 27% throughout the 3 year period starting
from 2005-2008 and decreased by only around 1.5% in the year
2008-09. The market share of Birla increased substantially by
around 8% in the year 2006-07 and thereafter again decreased
by around 6% in the year 2007-08. The market share of Birla
increased drastically by 10.76% during the investigation period.
No major change in market share of MRF could be noticed
duringthe investigation period except a decline of 1.7% in 2009-
10. Similar was the case with CEAT where no major change
could be noticed in the market share throughout the 5 year
21
period from 2005-2010 but it was reduced by 1% in 2009-10. In
the case of J.K. Tyre, it was observed that the market share kept
on decreasing throughout the 5 year period by around 1-1.5%
each year.
63. It was further noted that during the investigation period the
five domestic tyre companies consistently accounted for around
95% of the market share of the total production which implied
very high concentration resulting in high dependence of OEMs
and the replacement market on these five companies.
Summary of findings of the DG
64. Based on above analysis the DG returned the following
findings:
(i) The tyre companies have not passed on the benefit of
reduction in excise duty to the consumers.
(ii) Price parallelism existed amongst the tyre companies.
(iii) The tyre companies have not reduced the Net Dealer
Price (weighted price) in proportion to the actual
production.
(iv) The tyre companies have not utilized their full capacity
which resulted in limiting the supply.
(v) The companies have been able to earn positive margins
in most of the period under investigation.
(vi) The tyre companies have been inflating some
miscellaneous expenses into the cost of production to
reduce the net profit margins. Similarly, the analysis
also explains that the change in price of natural
rubber had no impact on the cost of production and
therefore, it does not explain the possible reason for
the increase in price of tyres.
(vii) The tyre companies are operating on high margins and
the same is not passed on to the consumers.
(viii) The five domestic tyre companies occupy about 95% of
the market share of the total production. This high
22
concentration made OEMs and the replacement
market highly dependent on these companies.
Conclusionsof the DG
65. Based on the above findings, the DG concluded that the
major domestic tyre companies acted in concert and ATMA
provided the platform to the members for exchange and sharing
of information relating to price, export, import, OEMs etc. Thus,
the DG concluded that ATMA and its five major domestic tyre
manufacturing companies (Apollo, MRF, J K Tyre, Birla and
CEAT) have acted in concert in contravention of the provisions of
section 3(3)(a) and 3(3)(b) of the Act.
Replies of the Parties
66. The Commission, after considering the investigation report
submitted by the DG, decided to forward copies thereof to the
following parties for filing their replies/objections thereto vide its
order dated 02.06.2011 :
(i) All India Tyre Dealers Federation (AITDF)
(ii) M/s J.K. Tyres & Industries Ltd.
(iii) M/s Ceat Ltd.
(iv) M/s MRF Ltd.
(v) M/s Apollo Tyres Ltd.
(vi) M/s Goodyear India Ltd.
(vii) M/s Kesoram Industries Ltd.
(viii) M/s Dunlop India Ltd.
(ix) M/s Michelin India Tyres Pvt. Ltd.
(x) M/s Bridgestone India Pvt. Ltd.
(xi) Directorate General of Anti-Dumping & Allied Duties
(xii) M/s Automotive Tyre Manufacturers Association
(xiii) M/s Modi Tyres Company Pvt. Ltd.
(xiv) M/s Falcon Tyres Ltd.
(xv) M/s TVS Srichakra Ltd.
23
67. None appeared for M/s Dunlop India Ltd., Directorate
General of Anti-Dumping & allied Duties, M/s Falcon Tyres Ltd.
and M/s TVS Srichakra Ltd.
68. Further, on the request of counsel for M/s Modi Tyres
Company Pvt. Ltd. and M/s Bridgestone India Pvt. Ltd., the
Commission vide its order dated 03.11.2011 struck off their
names from the array of parties as M/s Modi Tyres was reported
to be a sick company and was referred to BIFR and further M/s
Modi Tyres and M/s Bridgestone India Pvt. Ltd. were stated to be
not in production during the period of alleged cartelization.
Moreover, no relief was prayed against them.
69. In view of the above, before proceeding further, it would be
appropriate to record a brief resume of the replies of the parties
to the report of the DG.
Reply of AITDF
70. AITDF filed its reply to the report of the DG supporting the
same. It has contended that report of the DG vindicates the
consistent stand of the tyre dealers and tyre users that domestic
tyre companies led by ATMAhave been indulging in restrictive
trade practices by increasing the tyre prices in concerted manner
and by not passing on the benefits of reduction in excise duty to
the end consumers.
71. It has also contended that despite variation in economies of
scales and scale of product mix for variety of tyre sizes, the tyre
companies, through collective mechanism, have been staggering
tyre price revisions exploiting the market. The price revisions
since 2005-06 to 2010-11 and till datei.e. July 01, 2011 display
the same trend i.e. when input prices have gone up, the prices of
tyres and tubes have been increased by all of them within the
virtual same range by varying the revisions by small differential
to give an impression that they have been working in an
independent manner. Similar has been the case with regard to
24
reflection of reduction in excise duty from 32% to 10% in the last
5-6 years and the tyre companies have failed to reflect the
reduction in price of tyres in a similar manner with a minor
variation in percentage and timing. Hence, the price to the dealer
on reduction of excise duty on each occasion has virtually
remained same or with marginal change by way of cosmetic
reduction in price and, consequently, the basic ex-factory price
minus excise duty has been increased pro rataby all of them for
all categories of tyres i.e. truck/bus, LCV, passenger car, tractor
tyre, two/three wheeler tyres etc.
72. It has submittedthat while the natural rubber price during
December, 2010/January, 2011 to June/July, 2011 has gone up
from Rs. 205 per kg. toRs. 240 per kg. tillthebeginning of June,
2011, in the next four weeks, the natural rubber price has come
down and was prevailing at Rs. 210 per kg. Yet all the tyre
companies have increased the tyre prices. It has also been
pointed out that while the prices of other major raw materials like
synthetic rubber, carbon black, nylon tyre fabric, rubber
chemicals (all driven from crude oil) have not crossed the peak
average price of crude oil prevailing during the year 2008 when
the tyre prices were raised on the same pretext and again in the
year 2010, the tyre prices were raised on the back of record
increase in natural rubber price while the Central Government
reduced import duty on natural rubber by 7.5% to protect the
domestic tyre industry. It is further stated that during the year
2006, the tyre prices by all the tyre companies at regular
intervals went up in concerted manner but were not reduced even
after drop in raw material prices to the previous prevailing low
levels. Similarly, in the year 2008 similar exercise was committed
by the manufacturers in unison through several price increasetill
August/September, 2008. However, subsequently when natural
rubber price and prices of all other crude oil based raw materials
dropped to a 3-4 yearlow, thetyre prices were not rolled back by
these non-competing tyre companies which are members of
ATMA. It is also stated that again in the year 2011, the same
25
exercise was repeated between January to July, 2011 despite
ongoing investigation ordered by the Commission.
73. Lastly, it has been submitted on behalf of AITDF that the
rate of return on capital employed in the international tyre
manufacturing industry is traditionally low at 1.5%-2%, but in
case of Indian tyre makersthey have been having a rate of return
ranging from 4% to 6% on annual basis during the last 5-6 years.
The tyre industry world over makes low returns by nature of its
business model as against high rate of returns in case of
hospitality, travel garments, computers, white goods, FMCGs etc.
This only proves that the rate of return among the domestic tyre
majors, irrespective of their size, age and investment and even
product mix has been high at the cost of hapless consumers and
any weak performance for a quarter or so is more cosmetic and
doctoring/management of financial results just to display wrong
impression about their true health, which they cleverly hide in
their deceptive data management.
Reply ofATMA
74. ATMA in its reply to the report of the DG has stated that it
was never named as an opposite party in the complaint filed by
AITDF norany specific information/complaint was made against
it.
75. It has stated that the DG, after requisitioning information/
documents from ATMA has recorded an adverse finding against it
in the investigation report. However, the DG, apart from making
bland references to ATMA minutes/circulars has neither
identified nor placed reliance on any specific minutes of ATMA
meetings where any discussions pertaining to any alleged cartel
like activity is said to have taken place.
26
76. ATMA has also submitted that the prima facie order passed
by the Commission dated 22.06.2010 identified the parties
against which the DG was to conduct investigation. It has been
pointed out that ATMA does not figure in that list. Subsequently,
the DG despite not having sought permission from the
Commission to either expand the period of investigation or the
scope of investigation, has recorded adverse findings against
ATMA. Even assumingthat the DG under the provisions of the
Acthasthe power to expand period and scope of investigation, the
investigation undertaken by the DG is fundamentally flawed and
the investigation report is devoid of any merit. Theconclusions set
out therein are baseless and unsubstantiated in as much as the
DG ought to have identified the evidence/ documents on the
basis of which the adverse finding against ATMA was recorded.
77. It has further submitted that during the course of
investigation, ATMA, in full compliance with the multiple
requisitions, submitted all relevant documents/ information
including minutes of ATMA meetings. It has alleged thatthe DG
hasfailed to identify any specific documents and/or place reliance
on the same in the investigation report and has not annexed any
such minutes/circulars to the investigation report.
78. By way of preliminary objections, it has argued that Anti-
Dumping (AD) proceedings are initiated under applicable
laws/rules/regulations. The AD proceedings are pro-competitive
and are aimed at preventing anti-competitive pricing practices
through imports which would have an appreciable effect on the
domestic industry. It is stated that India is not the only country
where ADD has been imposed on Chinese/ Thai tyre imports.
79. It has further urged that AD rules require industry
representation and trade associations, such as ATMA, are best
suited to represent the domestic industry before the AD
authority. It is stated that a significant number of cases have
27
been filed by trade associations before the AD authority. If the
findings and conclusions set out by the DG in the investigation
report are adopted by the Commission, this would be contrary to
the provisions of section 62 of the Act which states that the
provisions of the Act are in addition to and not in derogation of
any other law for the time being in force. The AD rules are a law
for the time being in force and adoption of the DG’s argumentqua
the AD proceedings will be contrary to the provisions of section
62 of the Act itself.
80. It has averred that the vexatious and persistent
litigation/proceedings undertaken by AITDF is nothing but a
counter blast to imposition of ADD on Chinese and Tyre imports
by the AD authority which directly impacts members of AITDF.
This is a motivated proceeding and the DG has failed to establish
the credentials of the informant. This has beenstatedasa critical
flaw since it allowed the process of the Commission and the
provisions of the Act to be abused. It has further argued that
AITDF information and the DG findings essentially seek to build
in the anti-trust defense doctrine into the legal system in India,
which is clearly not allowed. As per ATMA, to suggest that the
process of the Commission and the provisions of the Act can be
deployed as a defensive measures to adverse findings under other
laws (ADD in this case) would be an affront to the legislative
intent.
81. It has also asserted that ATMA minutes, supplied by the
Commission,relate to the years 2005-2007, which is a period
prior to coming into force of the relevant provisions of the Act. It
has further stated that while the DG appeared to have collected
and analysed data from companies for 2005-2010 period, he has
clearly not placed reliance on any ATMA
minutes/circulars/documents after 2007 (April). Thus, it has
argued that the entire investigation report in as much as it
relates to ATMA, is clearly unfounded, baseless and illogical and
ought to be set aside.
28
82. Responding to the findings of the DG, it has been pointed
out by ATMA that every tyre manufacturer offers products with
identical specifications.The tyre ‘brand’ commands significant
visibility when compared to almost all other components fitted on
vehicles.Tyre production requires highly specialized knowledge
and technology as also significant investment.Tyre producers
have to compulsorily comply with a number of regulatory
requirements in India e.g. BIS which is now mandatory since
May, 2011.
83. It has pointed out that the DG in its report has treated
‘Cross Ply’ and ‘Radial Tyres’ as constituting one product when in
fact they are separate and distinct products.
84. Referring to the findings based on price parallelism or
information exchange,ATMA has pointed out the peculiar
features of the tyre industry. It has submitted that product prices
in the tyre tend to be similar or move in tandem because of
market forces. Further, price parallelism in the tyre industry
arises on account of the fact that the products sold are
homogenous (a consumer can potentially use tyres belonging to
different brands on the same vehicles so long as the
specifications are the same) which makes it difficult for
businesses to charge different prices to customers. Products in
the tyre industry share similar sources of inputs, which
meansthat competitors are subject to similar cost fluctuations in
setting their product prices. Prices of products in the tyre
industry are highly visible, which allows businesses to collect real
time market intelligence and monitor each other’s prices closely
and match competitors’ price movements.
85. It has been pointed out that the DG in its report has failed
to appreciate the critical fact that none of the following actions
29
undertaken by ATMA was aimed at determining the individual
conduct of any of its members:
i) Anti-Dumping Petition
ii) Low Cost Tyres
iii) Blacklisting Importers
iv) Export Realization
v) Supply of Tyres to OEMs
86. It has further submitted that the abovementioned
steps/activities are in line with the roles and responsibilities of
an association such as ATMA i.e. representing an industry group.
It has been contented that if the logic adopted by the DG in its
report is accepted by the Commission, it would lead to an
untenable situation where trade associations representing the
interests of an industry group, will be barred from adopting any
measure necessary to protect the interests of the concerned
industry. Lastly, it has asserted that forming a trade association
per se is not anti-competitive in any manner.
Reply of M/s MRF Limited
87. MRF in its reply to the investigation report of the DG has
submitted that the report fails to demonstrate the conditions
precedent for showing the existence of a cartel. Cartelization is a
serious misconduct and must be set out with particularity. The
report fails to show the existence of an agreement between MRF
and other tyre manufacturers to limit or control the production or
sale or price of goods. It has contended that for this reason, no
allegation under section 3(3)(a) and 3(3)(b) of the Act can be made
and the report ought to be rejected.
88. It has submitted that an ‘agreement’ between competitors is
a condition precedent to establish an allegation of cartel.
Reference has been made to a decision of the Supreme Court in
the case of Union of India v. Hindustan Development
30
Corporation,(1993) 3 SCC 499 at p. 531,para 14 to contend that
mere offering of a lower price by itself, though appears to be
predatory, cannot be a factor for inferring formation of a cartel
unless an agreement amounting to conspiracy is also proved. The
investigation report fails to show that there was an ‘agreement’
between the tyre manufacturers.
89. It has further averred that the report also fails to show the
causation of appreciable adverse effect on competition in India in
terms of the statutory factors laid down under section 19(3) of the
Act. It has urged that this is a condition precedent for the
allegation of a cartel against the tyre manufacturers which has
not been taken into account and hence the report is bad in the
eyes of law.
90. It has been pointed out that the DG has adopted a
theoretical approach and wrongly relied upon the economic
principles of price parallelism out of context ignoring the facts
and data given by MRF. The entire exercise of the DG in this
regard appears to have been based on his own prejudicial
perception about tyre industry rather than on facts and data
produced by MRF during the course of investigation, which have
been totally overlooked.
91. Further, it has argued that the report is wholly without
jurisdiction, fraught with fallacy against the tyre industry and
particularly against MRF based on mere surmises and
conjectures emanating from AITDF complaint, obsolete reports
and ought to be rejected on this count. The investigation has
been fishing and roving enquiry in a premeditated manner
without any reasonable ground or cogent data against MRF and
the report which has been prepared without any basis, should be
set aside on this ground alone.
92. It has been also submitted that the report consists of and
relies upon annexures of more than 400 pages. Many pages in
31
the annexures including the Tariff Commission Reports are not
legible and even otherwise annexures do not have any relevance
being obsolete, unrelated to the subject of investigation and the
conclusion drawn against the tyre companies and
particularlyagainstMRF. It has been contended that the report
ought to be rejected on this ground also.
93. It has contended that the investigation is allegedly
conducted based on information/ allegation filed by AITDF which
is an agency without credibility and has been acting at the behest
of interests which are against the domestic tyre industry which
supports import of tyres. Thus, AITDF is a party having direct
conflict of interest and is a motivated ‘informant’. AITDF is not a
representative body of the consumers or dealers. It is only a self-
styled representative of the alleged tyre dealers. It does not have
any legal character even though it claims to be of considerable
standing and seems to be an unregistered association. Except for
presumptive allegations without basis, there has been no credible
contribution in the form of information and the sole purpose of
AITDF is to make frivolous representations to mislead the
Government machinery against the domestic tyre companies.
94. It is also argued that since the case was transferred under
section 66(6) of the Act, the allegation and the period of coverage
should have been limited to the MRTP Act, 1969 as section 3 of
the Act has come into force only w.e.f.20.05.2009. The
investigation is liable to be closed on this ground alone.
95. It is argued that the investigation report has ignored the
order of the Commission dated 22.06.2010 and has proceeded to
unilaterally extend the period of investigation of the transferred
case from 2005 - 2007 to 2005 - 2010, without giving any reason
whatsoever. This was done since the DG was fully aware that the
provisions relating to anti-competitive agreements under the Act
had come into force from 20.05.2009 and the same could not be
32
invoked unless the period of investigation was extended. The
report is, therefore, without jurisdiction.
96. In the absence of any material facts or particulars
constituting a cartel, the information cannot be regarded as a
valid and proper allegation of cartel, which needs to be answered
by MRF.
97. Referring to case law, it is argued that it is settled law that
price parallelism by itself cannot amount to a price cartel. In this
regard, reference has been made to the decisions of the Full
Bench of the Hon’ble MRTP Commission in the cases of RRTAv.
ACCI Bayer (1993) 1 CTJ 7 at para 25 as well as other decisions
given in Grindwell Norton 1984 Tax LR 2219, India Foils 1984 Tax
LR2010, Hindustan Lever TOMCO 1983 Tax LR 2443, where it
has been held that price parallelism does not amount to cartel. It
is however denied that the investigation report shows price
parallelism of the tyre companies including MRF.
98. MRF denied any allegation of price parallelism or cartel, as
alleged or at alleventhough the information does not make any
clear and specific allegation with material facts and particulars.
99. The letter dated 28.12.2007 from the AITDF is the starting
point of the investigation, which has been lost sight of during the
conduct of the investigation by the DG and in the conclusions
arrived at in the report which travels beyond the allegations
which clearly shows non-application of mind and the report
ought to be rejected on this count.
100. It is submitted that the investigation is purported to be
carried out pursuant to an order under section 26(1) of the Act
dated 22.06.2010 by the Commission on a transferred case from
the DG (I&R), the MRTP Commission under section 66(6) of the
33
Act. The scope of the investigation hereunder cannot be extended
beyond the scope of the complaint under the MRTP Act, 1969.
The letter dated 28.12.2007 from AITDF to Ministry of Corporate
Affairs cannot be considered under the provisions of section 19 of
the Act. No new information has been relied upon by the
Commission to extend the scope of investigation upto 2010, nor
was an order to that effect passed. The investigation, hence, is
without jurisdiction and the investigation report needs to be
rejected on this count.
101. It is the case of MRF that the investigation proceeded
allegedly on the allegations by AITDF. Apart from the general
allegations made against the tyre industry viz. anti-trade, anti-
competition and anti-consumeretc., one of the main allegations
against the tyre manufacturers is that they are usurping the
excise duty reduction. However, it has been pointed out that the
main grievance as seen from the alleged complaint is related to
imposition of Anti-Dumping Duties which are not under the
purview of the scope of the Commission for the following among
other reasons:
a) Both the provisions work under different statutes and
the authorities work under different ministries of the
Government of India. In free trade, firms are allowed to
charge different rates in different market. The result
would be that firms would charge lower prices in
foreign markets and higher prices in domestic markets,
leading to material injury to the domestic producers.
Had price discrimination taken place by a monopoly
firm within one economy, the Government can
intervene to stop consumer exploitation by
enforcingalaw like the Competition Act, in India.
However, in the international context, it is the anti-
dumping duty that protects the domestic producers
initially and consumers in the long run.
34
b) The main purpose of imposition of Anti-Dumping Duty
is to protect the domestic industries from predatory
pricing. Dumping is a pricing practice where a firm
charges a lower price for exporting goods than it does
for the same goods sold domestically. It is said to be
the most common form of price discrimination in
international trade. It is a subtle measure of protection
which comes under the non-tariff barriers and is
product and source specific. Anti-dumping duties were
initiated with the intention of nullifying the effect of the
market distortions created due to unfair trade
practices adopted by aggressive exports. The duty is
justified because in case of many industries the start-
up period is long and start-up costs are also high.
Once these firms are forced out of the market as a
result of dumping by exporters, it is very difficult for
them to restart when the same exporters raise
priceswhich is detrimental to the domestic industry
affecting the livelihood of many.
c) Usually the intentions of charging such low price to
foreign consumers are to be able to wipe out the
domestic industries and eventually acquiring monopoly
power in the foreign market through predatory pricing.
Thus, it is on this ground that the anti-dumping duties
have been justified. AITDF is making its intentions
amply clear regarding its prejudice directly to the
domestic manufacturers and indirectly to the
consumers in the long run. The intention of AITDF to
stall or influence the Anti-Dumping Proceedings by
initiating action against the tyre companies including
MRF is illegal and uncalled for and hence the report
made thereon ought to be rejected.
102. Besides, para wise comments have also been filed by MRF to
the report of the DG.
35
103. Summing up the submissions, MRF has contended that the
DG has erroneously proceeded to target it overlooking and
ignoring the conduct of the Chinese tyre manufacturers who are
dumping both bias and radial tyres in India at prices which are
extremely low thereby adversely impacting the domestic tyre
industry as a whole. The approach of AITDF is to support the
said interests. The DG in its report has totally lost sight of the
interest of the domestic tyre industry and is insistent on giving a
report against the MRF and other tyre manufacturers and
thereby furthering and advancing the interestsof the Chinese tyre
manufacturers.
104. The DG has also ignored the fact that AITDF is acting in an
unfair manner by addressing representation in respect of levy of
anti-dumping duty notwithstanding the fact that there is a Final
Finding by the Designated Authority both in respect of bias tyres
by its order dated 29.06.2007 and radial tyres by its order dated
01.01.2010.
105. The DG has ignored the fact that the Designated Authority
is a distinct and different authority constituted under the
Customs Tariff Act and AITDF is trying to do indirectly what
cannot be done directly by seeking the intervention of the
Commission in respect of matter relating to levy and removal of
anti-dumping duty under the said Act.
106. The DG has completely ignored the fact that AITDF is
abusing the process of law by having a second round before the
Commission in respect of levy and removal of anti-dumping duty.
The DG has also ignored the findings of the Designated
Authority, which are final findings of fact and which can only be
challenged in appeal before CESTAT.
36
107. The DG has also overlooked the order dated 31.03.2011
passed by CESTAT where the appeals against the FinalFinding
dated 29.06.2007 filed by ATIA and ACOGwere dismissed.
108. It is further submitted that the letter/representation dated
28.12.2007 filed by AITDF to Corporate Affairs Ministry, news
item dated 28.12.2007 in the Times of India and a document
dated 09.06.2007 signed by Mr. S.P. Singh, Convener, AITDF
cannot be regarded as information within the meaning of the Act
either individually or collectively, warranting the conduct of any
investigation by the DG, CCI. However, the letter dated
28.12.2007 was treated as information by the MRTP Commission
resulting in the commencement of the investigation and the same
is being continued by the DG, CCI.
109. It has been submitted that a bald and bare allegation of
price cartel in the absence of any specific instance, any specific
period or any specific type of tyre cannot be regarded as a valid
and proper allegation of price cartel.
110. It has been contended that the only grievance made in the
complaint is that the tyre manufacturers failed to reduce prices
when rubber prices dropped to Rs. 82/kg. during July, 2006.
This cannot and does not constitute an allegation of cartel which
calls for an investigation. The allegation has to be viewed in the
context of MRF having not effected price increase proportionate
with the increase in natural rubber prices during the period
January to June, 2006when the natural rubber prices had
peaked.Merereference to price cartel or price concert or price
unison, in the absence of any facts or material particulars,
cannot be regarded as a valid and proper allegation of price
cartel.
37
111. Reference has been made to a decision of the Supreme
Court in the case of Union of India v.PanduramKashinath More
AIR 1962 SC 630 at para 10 to contend that an allegation of
improper conduct has to be made with material particulars and
in the absence thereof, cannot be regarded as a valid and proper
allegation of improper conduct. The said decision of the Supreme
Court was followed by the Bombay High Court in the case of
Raymond Woollen Mills v. MRTP Commission, 1982 Taxation Law
Report 2590 and also by the Karnataka High Court in the case of
Micov. MRTP Commission, 67 Company Cases 377.
112. It is argued that the aforesaid legal principle of setting out
an allegation of improper conduct with material particulars is
applicable to any allegation of anti-competitive agreements made
under section 3 of the Act including section 3(3)(a) and 3(3)(b)
thereof sought to be invoked in the present case which is patently
wrong and hence the report is liable to be dismissed.
113. It is sought to be contended that general allegations
however strong may be the words in which they are stated, are
insufficient to amount to an averment of fraud of which any court
ought to take notice.It is not a sufficient compliance with the rule
to state facts and circumstances which merely imply that the
defendant, or someone for whose action he is responsible, did
commit a fraud of some kind. There must be a probable, if not
necessary, connection between fraud averred and the injurious
consequences which the plaintiff attributes to it; if that
connection is not sufficiently apparent from the particular stated,
it cannot be supplied by general averments.
114. It has been pointed out that the Ministry of Corporate
Affairs by letter dated 28.01.2008 forwarded AITDF
representation to theMRTP Commission. The MRTP Commission
had by order dated 13.02.2008 considered the
representation/letter dated 28.12.2007 and directed an
investigation under the provisions of the MRTP Act, 1969 even
38
though the MRTP Commission had noted that the allegations of
restrictive trade practice were not substantiated or elaborated.
115. Reference has been made to the decision of the Supreme
Court in the case of Competition Commission of India v. SAIL,
(2010) 10 SCC 744 where certain directions were passed in para
135 of the order and the same have been quoted to the following
effect:
“(D).The Director General in terms of Regulation 20 is
expected to submit his report within a reasonable
time. No inquiry by the Commission can be proceeded
any further in absence of the report by the Director
General in terms of Section 26(2) of the Act. The
reports by the Director General should be submitted
within the time as directed by the Commission but in
all cases not later than 45 days from the date of
passing of directions in terms of Section 26(1) of the
Act.”
116. From the above, it is sought to be urged that there has been
a considerable delay on the part of the DG, the MRTP
Commission and the DG, CCI in conducting and completing the
investigation and submitting the investigation report. It is argued
that the delay in completing the investigation and submitting the
report has resulted in grave prejudice to MRF as a tyre
manufacturer besides being in total and complete violation of the
direction given by the Supreme Court to complete the
investigation and submit the report in all cases not later than 45
days from the date of passing of direction in terms of section
26(1) of the Act.
117. It is further contended that the Customs Tariff Act, 1975
and the Customs Tariff (Identification, Assessment and Collection
of Anti-dumping duty on dumped articles and for determination
39
of injury) Rules, 1995 form a complete and comprehensive code
and the orders passed thereunder cannot be agitated in these
proceedings though a backdoor approach by AITDF.
118. It is alleged that though AITDF has referred to final findings
dated 29.06.2007 of the Designated Authority imposing anti-
dumping duty on truck/bus Bias tyres imported from China and
Thailand and final findings dated 01.01.2010 of the Designated
Authority imposing anti-dumping duty on truck/bus Radial tyres
imported from China and Thailand, AITDF has failed to point out
the Final Findings dated 26.08.2010, being a Mid-Term Review
and Order dated 18.11.2010 passed by the Customs, Excise and
Service Tax Appellate Tribunal (CESTAT).
119. In conclusion, it has been prayed that the investigation
report should and ought to be rejected on account of the fact that
the investigation was without jurisdiction and the scope of the
transfer of the case under section 66(6) of the Act was to
conclude the proceedings under the MRTP Act, 1969 and not
purported to extend the scope under the Act.Finally, it has been
prayed that the proceedings may be closed.
Reply of Apollo Tyres Limited
120. Apollo has filed detailed objections to the report of the DG.
At the outset, it has contended that the DG failed to prove any
specific allegation against it. It has been stated that it is an
essential ingredient to prove any allegation of anti-competitive
conduct to demonstrate how a particular enterprise has violated
provisions of the Act i.e. how such an enterprise has entered into
an agreement which is in violation of the provisions of section
3(1) read with section 3(3) of the Act.
121. It has been submitted that the findings of the DG are based
purely on circumstantial evidence of parallel behavior which,
40
according to the DG, is a violation of the provisions of the Act. It
is stated that mere price parallelism cannot be considered as
evidence of collusive conduct. The DG’s report is purely based on
speculation and the conclusions about parallel behavior are
wholly unsustainable, particularly given the complete lack of any
specific or direct evidence relating to Apollo in particular or the
alleged cartel generally.
122. It has been stated that in the absence of any specific
allegations being made and without backing of any cogent
evidence, and even on the balance of probabilities, the DG’s
report must be dismissed in its entirety.
123. It has been pointed out that the DG has committed a
fundamental error in failing to establish the timeframe in which
the alleged cartel/anti-competitive activities took place, which is
essential to many aspects of the case, including the period during
which section 3 of the Act was not in force. Further, it is stated
that the DG’s report fails to give any reason for extending the
period and scope of investigation beyond 2008 without any
specific direction from the Commission. The mere fact that theDG
has investigated the conduct of tyre manufacturers, between
2005 and 2010, in the absence of precise and coherent proof,
does not in any manner indicate that any infringement occurred
during such time frame.
124. It is the case of Apollo that the Commission formed its prima
facie opinion only on the basis of the information and record
available till 2008. There is no evidence on record which shows
that the Commission collected or gathered any evidence relating
to any alleged infringement after 20.05.2009 i.e. after the Act
came into force but before the Commission formed its prima facie
opinion. Therefore, it is urged, the investigation could not have
been extended beyond the timeframe originally alleged in the
information, which relates to the period prior to 20.05. 2009.
41
125. It is argued that for a cartel to survive there must be
mechanisms in place for (a) coordinating the cartel agreement
and ensuring the functioning of the cartel, (b) monitoring the
behavior and conduct of the members of the cartel, and (c)
punishing members of the cartel who do not fall in line with the
decisions of the cartel. In the present case, the DG has failed to
produce any evidence whatsoever that suggests that any of the
above mentioned elements, which are critical to the operation
and sustenance of any cartel arrangement, are present in the
Indian tyre industry.
126. It is the case of the informant that in an industry (a) which
is fragmented, (b) where market shares are unstable, and (c)
where there is ease of entry, collusion is highly unlikely. This has
been stated as a reason to contend that the industry conditions
in India are simply not conducive to cartelization in the tyre
sector.
127. Objection has also been taken on the ground that the DG
has made very general and unsubstantiated statements regarding
the industry without any specific reference to and evidence
against Apollo in relation to its alleged role in the alleged cartel. It
is alleged that the intention of the DG while conducting the
investigation was to reach a finding of infringement under any
circumstance, whatsoever, demonstrating a significant bias
against Apollo.
128. Apollo emphatically denied that it engaged in any anti-
competitive behavior in violation of the provisions of the Act. It
specifically denied that it entered into any agreement, anti-
competitive or otherwise, with any other tyre producer regarding
pricing, manufacturing or distribution of tyres in India.
42
129. It is averred that without any direct, precise or coherent
evidence, which is essential to prove an agreement and come to a
conclusive finding of infringement under section 3(1) read with
section 3(3) of the Act, the findings in the DG’s report are not
sustainable. Reference has been made to the decision of the
Commission in the case of NeerajMalhotrav. Deutsche Post Bank,
Case No. 05 of 2009 which provides that, in order to establish a
finding of infringement under section 3(1) read with 3(3) of the
Act, the agreement must be established unequivocally.
130. It is asserted that Apollo neither engaged in any activity nor
ever entered into any agreement or concerted practice to directly
or indirectly fix prices, limit production or supply, or in any other
way, violated any provision of the Act. The DG has merely relied
on the parallel nature of price movements, production and
dispatches to suggest that there exists a cartel in the Indian tyre
industry, which is a completely skewed and convenient
conclusion, in gross ignorance of the market conditions in which
the Indian tyre industry operates.
131. The DG failed to appreciate that there exists significant
differentiation and heterogeneity in the Indian tyre industry with
different producers producing a large variety of tyres. The DG
completely ignored the fact that the availability of wide-range of
tyres makes it more difficult to monitor cheating, essential to any
alleged cartel’s sustenance, making collusion harder to sustain.
Therefore, argues Apollo, coupled with significant variance in the
product offering in the Indian tyre industry and lack of any
evidence adduced by the DG on the mechanism of the operation
or enforcement of the alleged cartel clearly suggests, that the
operation of a cartel in the Indian tyre industry is neither likely
nor possible.
132. It is averred that Apollo has not engaged in limiting the
supply or production of tyres as it has been consistently
operating on 89% - 94% of its available capacity, during the last
43
five years, which cannot under any circumstance be considered
to mean that it has been withholding its production artificially to
the detriment of the consumers.It has been pointed out that
capacity utilization in the Indian tyre industry is 70-90%.
133. It has been contended that the prices of tyres are not above
competitive levels as stated by theDG. Tyre prices, as they
currently stand, are not sufficient to sustain re-investment in the
additional capacity to meet expected demand in future. In
addition, while many tyre producers have reported losses in the
last few financial quarters, all of them have reported a fall in
profits and margins over many quarters. It has been further
submitted that the tyre price rise has been far below the general
Indian inflation level. On this basis alone, it is argued that it is
inconceivable that there is cartelization in the Indian tyre
industry. The tyre industry has faced steeply rising input costs.
Over time, it is averred, which increases have, to a large extent,
been absorbed by Apollo because of the inability to pass on costs
through price increases due to intense competition in the market
place.
134. It has been urged that the Indian tyre industry is highly
competitive and has witnessed and continues to witness
significant growth, both in terms of capacity addition and entry of
new competitors. Further, the Indian tyre industry has seen
significant new entrants such as Michelin and Yokohama
coupled with imports from other low cost countries such as
China despite anti-dumping duties, clearly indicates that the
market is highly competitive and therefore, the issue of existence
of a cartel does not even arise.
135. It is the case of Apollo that it always acts independently in
determining its commercial affairs and does not engage with its
competitors on any issue which might be considered as a
violation of the provisions of the Act.
44
136. Challenging the findings of the DG holding Apollo in
contravention of the provisionsof section 3(1) read with sections
3(3)(a) and 3(3)(b) of the Act, it has been contended that the DG
has failed to establish the required elements to make out a
sustainable case under the provisions of the Act and therefore,
the Commission must set aside the findings of the DG and close
the case against Apollo.
137. Assailing the findings of the DG which suggest that the
mere fact that prices for one particular T&B LUG tyre have moved
in parallel is sufficient to establish an agreement for the purposes
of section 3 of the Act, it has been argued that the existing
jurisprudence in India, the European Union (EU) and the United
State of America (US) does not in any way suggest that mere price
parallelism, which is the only evidence put forth by the DG,
would suffice. Further, it has been suggested that the same can
never be conclusive measure of collusive behavior. The DG has
also mis-stated the law which has been clearly laid down by the
MRTP Commission in various cases and by other courts in the
EU and the US.
138. It is averred that the DG has relied purely on circumstantial
evidence i.e. economic evidence of market behavior to suggest
there is an indication of collusive behavior in the tyre industry. It
is alleged that the DG failed to accurately analyze the
circumstantial evidence and its analysis is not supported by
strong economic principles.
139. Referring to the findings of the DG relating to price
parallelism, it is argued that price parallelism essentially means
that prices for a particular product move in a similar manner. It
has been highlighted that the DG in its report noted that prices of
the tyre companies moved in a similar direction, and finally
concluded that there exists price parallelism in the Indian tyre
45
industry. Based on the price parallelism, the DG concluded that
there is a concerted action. Challenging this finding, it is argued
that the DG jumped to conclusions based on its half-hearted
attempt at proving price parallelism, other than which the DG’s
report adduces no evidence of the alleged cartelization. It is
sought to be contended that it is well-settled globally that price
parallelism, by itself, cannot amount to an evidence of collusive
behavior.
140. It is the case of Apollo that sporadic parallel and
independent behavior of tyre producers, responding to the
prevalent market conditions, cannot be demonstrative of any
agreement under section 3 of the Act. The DG has failed to
provide any evidence of such an agreement.
141. It is also alleged that the DG made significant
computational errors in arriving at its findings on price
parallelism. The DG, for reasons only known to him, has
examined prices of only one specific type i.e. LUG tyre to
ascertain the evidence of parallel pricing.
142. The DG has not produced any evidence, including economic
evidence, to show that mere parallel pricing leads to an inference
of an agreement. Further, the DG failed to adduce any evidence
to prove that the parallel pricing in the tyre industry, taking into
account the nature of the products and the industry, the size and
the number of producers and the volume of the market in
question, cannot be explained otherwise than by collusive
behavior. Even if it is assumed, without admitting, there was
price parallelism, there is no reason to believe that the pricing
behavior of the tyre manufacturers was not a result for the
legitimate market conduct but some collusive conduct. If the
Commission were to accept the DG’s conclusions purely on the
basis of parallel pricing, then no supplier/seller, in any industry,
will be able to follow a general price increase/ decrease
introduced by a competitor. If pure price parallelism is
46
considered to be sufficient proof of an agreement, even in the
absence of conclusive evidence proving an express or implied
agreement which is the clear requirement under the Act, it would
result in the absurd outcome as competing manufacturers in any
given market would not even be able to match price cuts, which
would clearly be detrimental to the consumers and to competition
in the market at large.
143. Alluding to the findings of the DG to the effect that the
average capacity utilization in the Indian tyre industry dropped
during 2005-2010 leading to an inference that the tyre
manufacturers were not utilizing their capacity in full and
therefore limited supply, it is contended that the DG has applied
an incorrect measure to assess the industry-wide capacity
utilization levels on the basis of installed capacity and has not
considered the capacity that is actually available for production
which takes into consideration various factors associated with
functioning of a tyre plant such as ramp-up time, downtimes due
to maintenance and /or breakdowns, age of the plant, plant lock-
outs etc.
144. It is agitated that one of the key objectives of a cartel is to
enhance the profits earned by the cartel members by fixing prices
at levels that are close to monopoly level i.e. well above levels that
would have prevailed if the producers had actively competed with
each other. Prices cannot be kept at elevated levels if producers
do not keep supply levels sufficiently low in relation to demand.
In order to ensure that production and supply are low, it is often
the case in cartels that there is very little capacity addition over
time and in some cases, even a reduction of capacity. By
ensuring that capacity and capacity additions are kept in check,
cartelists can prevent other members of the cartel from
‘cheating’on the rules by secretly producing more (with their
unused capacity) and increasing their individual market share.
This is clearly not the case here, as there have been significant
industry-wide capacity additions over the last few years. It is
47
urged that Indian tyre industry generally and Apollo in
particular, haveadded significant capacity over last few years.
This fact alone completely discredits any argument made by the
DG that Apollo has limited the production and supply of tyres in
collusion with other tyre producers.
145. Impugning the analysis of the DG relating to capacity
utilization, it has been pointed out that the DG erred in its report
by focusing on capacity utilization and concluding the existence
of a cartel based on perceived low capacity utilization levels,
without analyzing the key variables that drive capacity utilization
viz.capacity, demand and production etc. Technical constraints
relating to operation of new capacity need to be factored into the
calculation of capacity utilization. It is widely understood in the
tyre industry that 100% of the installed capacity is not available
for production from the first year a plant is commissioned and
even thereafter. This is primarily because of various issues such
as lead time (ramp-up) that is required by a plant to stabilize
production, maintenance (both scheduled and un-scheduled),
labour unrests etc.The DG has further ignored the fact that there
was global economic crisis in or around 2008-2009 and the tyre
industry was also adversely affected by the same because of the
reduced demand by original equipment manufacturers i.e.
automotive manufacturers and reduced demand in the
replacement segment. TheDG has drawn generalized reference to
capacity utilization without considering specific aspects of each
company and why there are movements in relation to the
capacity utilization data. It is the case of Apollo that its capacity
utilization has been consistently very high except for a short
period in 2008-2009. It is alleged that the DG has completely
failed to take into consideration that the lock-outs took place
during the investigating period, thereby grossly mischaracterizing
Apollo’s capacity utilization.Acloser scrutiny of the production
figures reveals that Apollo has continuously added capacity and
increased its production during the last 5 years and there was a
drop in production in 2008-09 due to force majeure (lock-out at
48
its plants). In spite of lock-out at one of its plant in 2009-10,
Apollo’s actual production has gone up by 23%. In fact, on an
industry wide basis, Apollo is the only tyre manufacturer in India
which has added highest capacity during last 5 years.
146. Dealing with the issue of pricing of tyres above competitive
levels, it is sought to be contended that the Indian tyre industry
is highly raw material intensive, with raw material accounting for
about 65-70% of the production cost for tyres. The key raw
materials used in the manufacturing process are natural rubber
(about 43% of the total raw material); synthetic rubber (about
15%); nylon tyre cord fabric (NTCF) (about 18%); carbon black
(about 11%) and rubber chemicals (about 5%).
147. Challenging the findings of the DG to the effect that the
major component which affects the price of tyres is the cost of
natural rubber and the excise duty, it is argued that purely from
the raw material input costs, there are number of other
components which contribute significantly to the price of tyres,
which the DG failed to take into account.
148. It has been argued that tyre manufacturers’ cost of
production and consequently margins are dependent on the price
movements of raw materials. The prices of natural rubber, the
key raw material constituting around 43% of the total tyre
production costs, witnessed a shape rise during fiscal 2010-11.
Domestic rubber prices increased from lows of Rs. 95/kg in May
2009 to highs of Rs. 240/kg in April 2011 while global natural
rubber prices rose from USD 1.64/kg to USD 4.83/kg during the
same period. This unprecedented price was on account of a sharp
increase in demand-particularly from the global tyre industry,
rise in crude oil prices, and speculative interest in global rubber
futures. Coupled with the demand spike, supply was disrupted
by adverse climatic conditions in key rubber cultivating countries
like Thailand (largest producer in the world), Indonesia, India and
China. It has also been pointed out that the DG has considered
49
per kg weighted average cost of natural rubber as derived from
the Rubber Board’s database, which gives an indication of cost
on yearly basis whereas the cost of natural rubber fluctuates on
daily basis. Further, the cost of natural rubber to the tyre
manufacturer depends on the cost of imported natural rubber
which also fluctuates in international markets, coupled with
fluctuations in foreign exchange rates. Hence, it is argued that
considering average domestic price is incorrect. Additionally, it is
contended that the average price of natural rubber has increased
significantly over the last eight years, which in turn have had a
significant ‘knock-on’ impact on the cost of production of tyres
and consequently increase in tyre prices.
149. It has been pointed out that the report has failed to analyze
movement in other elements of the cost of productioni.e.utility
cost, crude oil, nylon prices, salary & wages, depreciation,
general administration cost etc. The tyre industry involves heavy
investment in research and development (R&D) and technological
advancements. The DG has failed to appreciate the other costs
involved in the tyre industry and has gone merely by price
movement in natural rubber. This is a faulty approach, argues
Apollo.
150. Grievance is also made of the fact that the DG has made
general observations that tyre manufacturers have not passed on
the benefits of the decreased excise duty to the customers. It is
alleged that in complete contrast to the assertions/findings by
the DG, Apollo has been diligently passing on the benefits of
excise duty reductions in the best interests of its customers.
151. It is also contended that the mere fact that Apollo is making
profits on the sale of tyres cannot be suggestive of violation of the
Act. The DG has failed to appreciate that Apollo’s profits have
fallen, clearly showing that the market conditions are volatile and
competitive, which cannot support the formation or existence of a
cartel either in theory or inthe ‘real world’. The DG has also failed
50
to appreciate that the cost of sales has increased substantially
over last five years. The DG’s method of considering absolute
operating margins to measure profitability are fatally flawed
because gross or operating margins on their own cannot indicate
whether prices charged by any company are supra-normal.
152. Coming to the market share analysis of Apollo and the
industry, it has been pointed out that the DG has examined
market shares for the period 2005-10 for the five manufacturers
using the information submitted by Birla Tyres. The DG has
concluded that during the investigation period the five domestic
tyre companies consistently accounted for around 95% share of
the total production. This, according to the DG, implied very high
dependence of OEMs and the replacement market on these five
companies. In addition to that, the DG also noted the movement
in the shares of the respective manufacturers for the period
under investigation.
153. Apollo has challenged the market share analysis conducted
by the DG. It has been pointed out that the market shares of key
players in an industry can have significant impact on their ability
to arrive at an agreement. The analysis has been challenged inter
alia on the grounds that the DG failed to take into consideration
imports as also the fluctuations in market shares.
154. Challenge is also laid to the findings of the DG to the effect
that Apollo’s prices are higher than the other major domestic tyre
manufacturers which strengthened the argument that there
exists price leadership. It has been submitted by Apollo that
whilst the DG has made some theoretical assertions, it has
completely failed to prove that there exists price leadership. The
DG has not adduced even a single piece of empirical evidence to
prove that price leadership exists in this market. Further, the
mere fact that Apollo charges a higher price than other tyre
manufacturers does not in any way, in the absence of any direct
51
and cogent evidence, suggest that other manufacturers follow
Apollo’s price as a result of some kind of anti-competitive
agreement. If the DG’s logic is to be believed, it would mean that
all manufacturers who independently decided to follow the
pricing of a company with a higher price in the market would be
unable to do so without breaching the Act. Such a result would
not only be erroneous but also absurd as it would lead to
suppression of independent decision making and completely
destroy the dynamics of a competitive market.
155. Referring to the findings of the DG that the domestic tyre
manufacturers have collectively tried to resolve or frame collective
strategy in order to protect themselves and exchanged
information in relation to developing strategy on low cost tyres,
export realizations, anti-dumping proceedings etc., it has been
strenuously argued by Apollo that it has not indulged in any
exchange of information, either on its own or through ATMA,
which may in itself be considered as or result in anti-competitive
agreement.
156. Apollo is also aggrieved of the fact that the DG relied upon
historic data, which in some cases was more than 25 years old to
substantiate his findings. Such reliance on these historic reports
was completely fallacious and sought to portray an incorrect
picture, which is divorced from the reality of present day demand
and supply conditions faced by market participants. Further, the
findings in these reports/studies cannot even be considered as
circumstantial evidence since it is purely historic and in some
cases is more than35 years old, and the conclusions given in the
reports (especially the academic studies) is not based on complete
data. There are inherent gaps in these reports. Further, these
reports do not in any event suggest that there is an agreement
among various tyre manufacturers in violation of provisions of
the Act.
52
157. The DG has sought to produce the findings of the Tariff
Commission, to suggest that the tyre manufacturers were making
huge profits and the market forces have been unable to bring
benefits to the consumers in the form of lower price. The Tariff
Commission reports, are in respect of Tariff Commission Report
Phase I (1985) and Tariff Commission Report Phase II (1988)
which clearly suggests that one was prepared approximately 26
years ago and the other was prepared 23 years ago. It is alleged
thatthese reports are completely out of date and relate to a period
which was steeped in License Raj, when there were little or no
imports and are therefore completely divorced from the market
realities of today. The reliance by the DG on these reports is
totally misplaced and the same must be out-rightly rejected by
the Commission, submits Apollo.
158. Additionally, referring to the Anti-Dumping Duties, it has
been submitted that consequences of Government action or
policy cannot be attributed to the enterprises carrying on
business in the industry. Government policy is not a result of an
agreement amongst enterprises. Therefore, the Commission is not
an appropriate forum to challenge Government policy. Anti-
dumping measures by the Government are purely policy
decisions which are out of the jurisdiction of the Commission.
Apollo cannot be held liable on account of anti-dumping duties
levied as result of the policy decision of the Government of India
and allegations in relation to these should be dismissed in their
entirety. Further, it is averred that the anti-dumping duty has
been removed with effect from August 2011 placing imported
tyres in direct competition with the domestic tyre manufacturers.
159. Lastly, grievance has been made relating to some alleged
procedural errors viz. extension of investigation period by the DG;
infirmity in the prima facie order; lack of reasons etc. Besides,
some miscellaneous arguments have alsobeen made by Apollo.
53
160. Based on the above submissions, it has been prayed to the
Commission to dismiss the findings of the DG in its entirety and
to exonerate Apollo from all the allegations.
Reply of M/s JK Tyre & Industries Ltd.
161. J K Tyre has filed its reply to the report of the DG. It has
pointed out that the report overlooks and ignores the scope of the
AITDF letter dated 28.12.2007 which has been treated as
information limiting the allegation to removal of anti-dumping
duty and not passing on the benefit of excise duty reduction. It is
stated that both the aforesaid allegations are outside the scope of
the MRTP, Act, 1969 and the Competition Act, 2002. The
allegationsrelating to the anti-dumping duty and removal thereof
fall under the purview of the Customs Tariff Act, 1975 and the
Customs Tariff (Identification, assessment and collection of anti-
dumping duty on dumped articles and for determination of
injury) Rules, 1995 (Anti-Dumping Rules).
162. To buttress the point, reference has been made to the
decision of the Supreme Court in the case of Haridasv.All India
Float Glass Manufacturers Association, (2002) 6 SCC 600 where
it was held that the two statutes and regimes operate in different
and distinct spheres and there is no conflict between them.
Referring to para 48 of the order, it has been pointed out that the
Supreme Court held that whether to allow imports or not and the
terms on which an item may be imported is a matter of policy
and regulated by law. In para 49, it was held that to allow a
challenge to actual import will amount giving to MRTP
Commission jurisdiction to adjudicate upon the legal validity of
the provisions relating to imports, which jurisdiction
theMRTPCommission does not have. Thus, it is contended that
the rate of import duty, which is imposed, is a legislative act and
is, thus, not amenable to jurisdiction of the MRTP Commission.
The levy or non-levy of anti-dumping duty or other duty being a
legislative act under the Customs Tariff Act is also not a matter of
judicial review by the MRTP Commission.
54
163. Further, it has been averred that the Customs Tariff Act,
1975 and the Customs Tariff (Identification, assessment and
collection of anti-dumping duty on dumped articles and for
determination of injury) Rules, 1995 (Anti-Dumping Rules) form a
complete and comprehensive code. It has been submitted that
allegationsmade by AITDF against levy of anti-dumping duty on
import of truck/bus tyres (Bias) could be agitated only before the
Designated Authority or the Tribunal (CESTAT) and could not be
agitated before the Commission.
164. It is alleged thatAITDF is guilty of suppression very
andsuggestionfalsi as it has suppressed material facts from the
DG and the Commission. It has been pointed out that AITDF by
its representation dated 28.12.2007 suppressed the fact that the
Designated Authority by Final Findings dated 29.06.2007 had
imposed anti-dumping duty on trucks/bus tyres (bias) imported
from China and Thailand after an extensive hearing where the
AITDF had also fully participated and made their submissions
and the AITDF had not filed any appeal against the Final
Findings of the DA. By suppressing the above facts, it is alleged
that AITDF was able to abuse and misuse the judicial process by
persuading the DG (I&R) and the DG, CCI to investigate the
matter notwithstanding the fact that the Final Findings are final
and binding qua AITDF and consequently, any grievance in this
regard could not be entertained. It is further alleged that AITDF
also failed to point out to the DG the Final Findings dated
26.08.2010, being a Mid-Term Review, passed by the DA
enhancing the anti-dumping duty and Order dated 31.03.2011
passed by the Central Exercise and Service Tax Tribunal
dismissing the appeals filed against the Final Findings dated
29.06.2007 of the DA.
165. Raising the plea of res judicata, it is argued that the same
would constitute a bar to the very entertainment of the
55
information filed by AITDF pending before the Commission
seeking the relief of removal of anti-dumping duty. Reference has
been made to the provisions contained in section 11 of the Code
of Civil Procedure, 1908 which provides that no Court shall try
any suit or issue in which the matter directly and substantially in
issue has been directly or substantially in issue in a former suit
between the same parties or between parties whom they or any of
them claim, litigating under the same title, in a court competent
to try such subsequent suit or the suit in which such issue has
been subsequently raised, and has been heard and finally
decided by such court. It has been urged that the principle of
generaliaspecialibus non deroganti.e.in case of a conflict between
the general and special provision, the latter provision would
prevail.
166. Raising the issue of retrospectivity of the provisions of the
Competition Act, 2002, it has been contended that the
samecannot and does not have a retrospective application. The
provisions relating to anti-competitive agreements came into force
with effect from 20.05.2009 whereas the representation of AITDF
was dated 28.12.2007 and merely refers to price increases made
by tyre companies in the year 2006. AITDF did not make any
allegation during the investigation before the DG (I&R), the
MRTPCommission and the cause of action, if any, arose in 2006.
Subsequently, the investigation was transferred to the DG, CCI in
the year 2010. At the relevant time of filing of the representation
dated 28.12.2007, only the MRTP Act, 1969 was in existence. The
Competition Act cannot have a retrospective application in
relation to price increase in the year 2006.
167. Further, it has been submitted that the report fails to allege
much less establish an ‘agreement’ between J K Tyre and its
competitors, which is a condition precedent for a price cartel.
Reference has been made to the decision of the Supreme Court in
the case of Union of India v. Hindustan Development Corporation,
(1993) 3 SCC 499 at 531 para 14 to contend that a mere offering
56
of a lower price by itself, though appears to be predatory, cannot
be a factor for inferring formation of a cartel unless an agreement
amounting to conspiracy is also proved. Ithas been submitted
that the report fails to show that J K Tyre had entered into an
agreement with its competitors to limit or control the production,
distribution, sale or price of goods. It has also been pointed out
that the representation of AITDF does not refer to the same.
168. The economic principles of price parallelism as relied by the
DG have been disputed and denied by J K Tyre. Referring to the
finding in the report at page 24 holding that there is marginal
difference in the net dealer price of all companies except Apollo, it
is argued that the same demolishes the case of price parallelism.
It is alleged that the DG appeared to be relying on surmises and
conjectures and perceptions about tyre industry rather than on
facts and data furnished by J K Tyre during the course of
investigation. Alternatively, it is argued that the marginal
difference in the net dealer price of different tyre companies and a
gap with the price of Apollo Tyres would explode the myth of
cartel.
169. It has been contended that an allegation of a cartel is an
allegation of improper conduct or serious misconduct which
cannot be made in a vague or general manner based on an
impression or perception. An allegation of improper conduct has
to be laid down with material facts and material particulars.
There has to be clarity and certainty and accuracy about the
material facts and material particulars in the information petition
to show how a charge of cartel is made out. In the absence of any
material facts or particulars constituting a cartel, the same
cannot be regarded as a valid and proper allegation of cartel,
which needs to be answered by J K Tyre.
170. It has been strenuouslycontendedthat price parallelism by
itself cannot amount to a price cartel. To support the plea,
57
reference has been made to the decisions of the MRTP
Commission in the cases of RRTA v. ACCI Bayer (1993) 1 CTJ 7et
al where it has been held that price parallelism does not amount
to cartel. Without prejudice to the above legal proposition, J K
Tyre denied any allegation of price parallelism or cartel, as
alleged or at all.
171. Detailed parawise comments have also given by J K Tyre.
172. Referring to the price analysis carried by the DG, which has
been further subdivided into price structure and price movement,
it has been stated that the same is incomplete and it has been
averred that it is incorrect to suggest that the cost of natural
rubber and excise duty would constitute the major component
affecting price of tyres. It has been contended that the DG has
wrongly held that during the investigation period excise duty has
shown a downward trend. It is argued that excise duty has, in
fact, increased from 8% to 10% with effect from 01.03.2010 and
therefore it is incorrect to suggest that excise duty has shown a
downtrend as observed by the DG. It is the case of J K Tyre that
it had passed on more than the entire reduction of excise duty
from March, 2008 to March, 2009.The finding of the DG that
reduction in the excise duty was not passed on by J K
Tyrehasbeendenied. It has been submitted that the aforesaid
finding of the DG demonstrated a complete lack of understanding
of the tyre trade. The present investigation relates to the
purported information filed by AITDF purporting to act on behalf
of tyre dealers. J K Tyre sells its products on a principal to
principal basis to tyre dealers who in turn sell the products to the
truck owners or customers. There is no privity of contract
between the J K Tyre and the truck owners or customers.
Moreover, J K Tyre issues a Price List which inter alia contains
the Net Dealer Price (NDP) and the maximum price which is the
maximum recommended price. J K Tyreis not in a position to
ensure that the tyre dealers in fact pass on the benefit of
reduction in excise duty to the truck owners/consumers.
58
Grievance has also been made the DG has wrongly equated the
tyre dealers with consumers. It has been stated that the tyre
dealers are in fact resellers of tyres and do not actually use or
consume the tyres. This demonstrates that the DG has failed to
take into account the fact that dealings between J K Tyreand the
tyre dealers are on a principal to principal basis and the tyre
dealers in turn sell the products to the truck owners/ customers.
173. It has been alleged that the DG’s report is riddled with
inconsistencies and contradictions, which throw a serious doubt
regarding the correctness of the figures mentioned in the report.
Reference has been made to the analysis of natural rubber prices
by the DG in this regard.
174. It has been pointed out that there are several raw materials
used in the manufacture of a tyre apart from natural rubber. The
approach of the DG in referring to only natural rubber out of the
several raw materials viz. Nylon Tyre Cord, Carbon Black,
Beadwireetc.used in the manufacture of tyres demonstrates lack
of understanding of the process of manufacture of tyres. The
patently erroneous approach based on a rough and ready
assessment without taking into account the cost of all the raw
materials used in the manufacture of the tyre has been objected
to by J K Tyre. It has been, however, agreed by J K Tyre that the
natural rubber cost is a major contributor to the cost of
production but it is not the only factor. Thus, it is argued that
the change in cost of production is never exactly same as that of
change in natural rubber prices.
175. Exception has been taken to the finding in the report that
no satisfactory explanation was given to the increase in cost of
production despite substantial reduction in price of natural
rubber. It has been argued that the weighted average price of
natural rubber furnished by J K Tyreshowed that there was an
increase in prices from 2009-2010. Thus, the finding itself has
59
been described aspatently wrong since the report failed to
consider the data furnished by J K Tyre which demolishes the
finding given in the report. Further, it has been submitted that
the DG has not asked for any explanation from J K Tyrein the
probe letters sent in this regard.
176. With regard to the finding that tyre companies have been
inflating some miscellaneous expenses into the cost of production
to reduce their net profit margins, the same has been strongly
disputed by J K Tyre. It has been pointed out that J K Tyreis a
listed public limited company and its accounts are audited by
Statutory Auditors who are appointed by the shareholders. The
audited results are circulated to around 30,000 shareholders of
J K Tyreand the same are approved in the annual general
meeting.
177. It has been submitted by J K Tyrethat it produces bias and
radial tyres of different categories in different sizes. Asthe
investigation was confined to only one size of truck tyre (LUG),
the reference to the total production of all tyres for all categories
and all sizes as a basis of comparison clearly amounted to a
comparison between incomparable. The DG has deliberately tried
to compare the total production of all tyres with the Net Dealer
Price of one particular size of tyre of J K Tyrei.e. 1000.20 16 JTK
LUG.
178. It has been contended that the chart showing the Net Dealer
Price (weighted average) for 5 LUG Tyres of 5 companies does not
disclose any price parallelism, as alleged or at all. The difference
between the highest price and the lowest price varies
considerably both in actual amount as well as in terms of
percentage. It has been pointed out by J K Tyrethat it was giving
discounts to its dealers during the aforesaid period and the Net
Dealer Price is not the effective price at which the tyres are
supplied to the dealers. It has also been added that the dealer
margin which is the difference between the maximum price and
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the selling price in respect of the tyre under investigation
continues to remain very high and ranges from 10.2% to 16.2%
from 01.04.2002 till date. Based on this, it is contended that it
demolishes the case for any alleged grievance made by AITDF
purportedly on behalf of tyre dealers relating to price increases
affected by J K Tyre, which has no bearing or impact on the
margin of the dealers whatsoever.
179. It has been reiterated that the price increases are based on
market factors including changes in cost of production to leave a
reasonable margin of profits and return on investment.
180. It has been argued that the chart in the report showing
capacity utilization movement related to all tyres whereas the
present investigation was confined to one particular truck tyre. It
has been pointed out that the said chart fails to take into account
that the domestic availability of truck tyres of J K Tyrehad, in
fact, increased during the period.
181. Similarly, objection has been taken to the fact that cost of
sales, sales realization and the difference between the two have
been taken from all truck tyres of different sizes both bias and
radial whereas the investigation was confined to only one truck
tyre (bias) i.e. 1000.20 16 JTK LUG Tyre.
182. The approach of the DG in drawing a conclusion based on
the profit of a single year i.e. 2009-2010 insofar as J K Tyre is
concerned has also been faulted.It has been alleged that the DG
failed to take into account the profit for the previous years which
was less than 1% except in 2006-2007.
183. With reference to market share analysis, it has been pointed
out that the said data is based on total production figures of
truck tyres. The said data fails to take into account export figures
61
which have to be deducted from the total production figures to
show the actual domestic tyre availability and the consequent
market share. It is sought to be clarified that for the year 2009-
2010, there was an illegal strike in the factory of J K Tyre. It is
stated that the changes in the market share figures from 2005-
2010 show that there is intense competition in the tyre market.
184. It has been conceded share of production of top 5
companies is over 95% but it is sought to be explained by arguing
that the same is the scenario globally where top 10 companies
command over 80% of the market supplies.
185. It has been submitted that there is no restriction on the
entries of new players from the domestic as well as international
markets but industry has not remained very attractive due to
very low return on investments.
186. Lastly, it is urged that J K Tyreis a member of ATMA and
does in fact attend meetings of ATMA held on different dates to
discuss common issues faced by the tyre industry. With regard to
the allegation of ‘Low Cost Tyres Strategy’ in the report, it is
denied that J K Tyreasa member of ATMA adopted the alleged
strategy of launching low price tyres. It has been averred that J K
Tyreis following its unique marketing strategies to sell its
products in a highly competitive market. Similarly, allegation of
‘collectively blacklisting the importers’has been denied as wholly
misconceived and incorrect.
187. In view of the above submissions, J K Tyre has prayed to
the Commission to reject the report of the DG and to close the
proceedings.
Reply of Kesoram Industries Limited (Birla Tyres)
62
188. Birla Tyres has filed its reply/ objection to the report of the
DG and written submissions/ additional affidavit in reply/
objections. At the outset, it has been pointed out there is a
serious jurisdictional error committed by the DG to proceed with
the investigation in a transferred case under section 66(6) of the
Actby applying new standard in respect of conduct and practices
which happened prior to coming into effect of the Act i.e. on or
before 20.05.2009, the date when the Act came on the statute
book and more particularly, when there is no specific
assertion/allegation in the complaint or in the term of reference
order of Commission dated 22.06.2010 that there is a
continuance of practice by the noticee as forbidden under the
Act. Thus, the entire assumption of jurisdiction by the DGto test
the conduct and/or practices of the noticee companies on the
basis of the standards set by the new law for a period prior to its
date of implementation is faulty and erroneous.
189. It has been further contended that the DG’s report has
proceeded on wrong, erroneous and faulty premise bylimiting and
restricting investigation to truck and bus tyres(bias lug tyres) of
different make and specifications without clearly setting out the
reasons and/or justification for doing so.
190. It has been submitted that in order to arrive at a conclusion
as to whether there is any formation of ‘cartel’ as defined under
section 2(c) of the Act, there has to be a clear finding on the
existence of the ‘agreement’ as defined section 2(b) of the Act.
Although, the ‘agreement’ as defined under section 2(b) is a wide
and inclusive definition which not only includes formal written
agreement which is enforceable in law but also informal
‘understanding’ and ‘arrangement’ in the widest possible
meaning, yet no material evidence was cited by the DG in its
report about the existence of any agreement as defined. Thus, it
is argued that based on the material available on record, the DG
has not been able to come to a conclusion or recorded any finding
of the existence of any ‘agreement’ as understood under section
63
2(b) of the Act. It is further submitted that when the direct proof
is not available about the existence of the ‘agreement’, the
circumstantial evidence may form a basis of a reasonable
inference about the existence of such agreement but the DG has
also failed to produce any conclusive proof or establish the
existence of the circumstantial factors from where the easy
inference can be drawn as to existence of the agreement. It is
alleged that in the present case, no evidence was produced or
relied upon by the DG which points to the collusive meeting of
minds of the domestic tyre manufacturers or which indicates
conspiracy of any sort to restrict free flow of goods or jacking up
the prices by creating artificial demands in the market to ward off
competition. The entire approach of the DG on the formation of
the opinion about the existence of cartelization has been
described as based on mere conjectures or surmises.
191. It has been pointed out that the DG in its report has
referred to the minutes of the meetings of ATMA to hold that it
acted as a platform for exchange and sharing of information
related to price, export and other related issues and therefore,
concluded that five major tyre manufacturing companies have
‘acted in concert’ in violation of the provisions of sections 3(3)(a)
and 3(3)(b) of the Act. This conclusion has been challenged as
totally faulty and erroneous because there is no minutes of ATMA
produced or brought on record to support the conclusion that
there is a meeting of minds of the different tyre manufacturers
determining the prices of the products to be sold in the market.
It has been submitted that the strategy to determine the prices of
the product is all guided and governed by market forces as there
is an intense competition amongst the tyre manufacturers. Mere
exchange of views and opinions and share of information relating
to common issues to the tyre industry cannot be termed as an
anti-competitive behavior until and unless a tacit understanding
or concerted action is proved to be found restricting competition.
In this connection, reliance was placed on the judgment of US
Supreme Court in Maple Floor Manufacturers’ Association
64
v.United States of America 268 US 563. The following passage has
been quoted in this regard:
“It is not, we think open to question that the dissemination
of pertinent information concerning any trade or business
tends to stabilize that trade or business and to produce
uniformity of price and trade practice. Exchange of price
quotations of market commodities tends to produce
uniformity of prices in the markets of the world. Knowledge
of the supplies of available merchandise tends to prevent
over production and to avoid economic disturbances
produced by business crisis resulting from over production.
But the natural effect of acquisition of wider and more
scientific knowledge of business conditions, on the minds of
the individuals engaged in commerce, and its consequent
effect in stabilizing production and price, can hardly be
deemed as restraint of commerce, or, if so, it cannot, we
think, be said to be an unreasonable restraint, or in any
respect unlawful”
(Emphasis added)
192. Further, it is averred that because of the wrong and
incorrect data selection and adoption of incorrect methodology in
comparing the prices of the products of different tyre
manufacturers, the result arrived at by DG on price parallelism is
faulty. It is stated that there is no lowest common denominator
based on which the price movement was examined or changes in
the price was recorded. No common platform was formulated to
measure the price movement of tyre or any specific time frame
was selected in comparing the price movement. Prices of the raw
materials as well as the finished products rise and fall either on
daily basis, monthly basis or yearly basis. In such a price
movement scenario, the movement of the price cannot be
examined and compared between the different manufacturers of
tyres without first bringing the data under one common platform.
Without doing so, it always runs the risk of doing a comparison
between non-comparable. There are no clear-cut measures
adopted to arrive at-i) Net dealer price; and ii)Net weightage
65
average. Each manufacturing unit has its own method of
adopting the net dealer price or net weightage average. No
common identifiable measure to compare the price was selected.
Pattern of price changes by the domestic tyre manufacturers with
respect to time was not examined properly. Finding recorded to
the effect that drop in the prices of rubber or the excise duty
reduction, benefit of which are stated to have not been passed on
to the consumers are also faulty as it has not analyzed properly
taking into account the time factor, rise and fall of prices of
procured prices of natural rubber both in domestic and
international markets, interface between manufacturer and
dealers and also the rise of input costs of other raw materials
required for tyre productions as indicated by the various tyre
manufacturers. All this has been done on the basis of ‘pick and
choose approach’ and in perfunctory manner which only
behooves of the nature of comparing oranges with apples. The
entire basis of the finding on price parallelism has been described
as faulty and erroneous.
193. Refuting charges of price parallelism, it has been contended
that assuming price parallelism exists then also adoption of
parallel business behavior in a highly competitive market
scenario does not mean anything. It may only give an indication
of price stabilization in the market. Reference has been made to
Alkali Manufacturers’ Association of India, In re RTPE No. 26 of
1984 Order dated 29.05.1985; Bell Atlantic Corporation v.Twomby
550 US 544 (2207); and Wood Pulp case of EU Commission. It
has been submitted that it can, at best, be considered as one of
the price stabilization factor but cannot be taken to have
established as an arrangement which would require something
more to justify that the anti-competitive practice exists in the
market. Reference has been made to American Tobacco Co. v.US
1946 (328) USS 781. It is argued thatan anti-competitive practice
is a course of conduct which has or is intended to have, or is
likely to have the effect of restricting, distorting or preventing
competition in any market. In the present case, it is argued that
the DG in its report merely indicated price parallelism as one
66
form of business behavior to show that there is a conspiracy at
work between the five domestic tyre manufacturers to fix the
price at a level which is independent of market forces. The effect
of price parallelism has been projected in a manner as an entry
barrier from the fact of anti-dumping investigation initiated at the
instance of the domestic tyre companies against foreign tyre
majors which has its origin in- China and Thailand. The DG did
not consider it necessary to investigate as to whether there is any
entry barrier or not. In fact,Michelin and Bridgestone which are
internationally renowned tyre manufactures are setting up their
productionplants in India with a high investment cost which was
not even noticed by the DG in its investigation. Thus, ‘working in
concert’ was made the only available option to attack the
domestic tyre manufacturers in formation of an association to
lodge an anti-dumping case against the Chinese and Thailand
tyre importers. Any law which statutorily required forming an
association in order to lodge a complaint under anti-dumping
proceeding cannot be considered to be anti-competitive behavior.
194. It has been submitted that the DG in its report referred to
price parallelism as a good measure of indicator that information
sharing has taken place between five domestic tyre
manufacturers. This reasoning has been impugned as faulty by
arguing that meresharing of information cannot be considered to
be anti-competitive behavior as it would be then going against the
freedom to form association, in the instant case-ATMA, which is a
constitutionally guaranteed right to form association under
Article 19(1)(c). Until and unless, it is proved with reasonable
certainty with material evidence that there is a conspiracy or
collusive design amongst the members of the association which
can be reflected in any form of agreement, as known in
competition law, to ward off competition, it cannot be said that
mere sharing of information is an anti-competitive practice.
195. Objection is also taken to the report of the DG by pointing
out various inconsistencies therein in so far as when it records
67
that the companies are not utilizing capacity in full thereby
limiting supply. It has been pointed out that in the case of Birla
Tyres capacity utilization has been always at its peak amongst all
domestic tyre manufacturers, which the DG itself has recorded in
its report which shows that capacity utilization is 97.67% in
2007-08 and 104.57% in 2009-10. The DG has failed to take
note of the production cost including various other
elements/factors. One of the main factors which the DG has
identified for anti-competitive activities by five domestic tyre
manufacturers is that the consumers are not benefited by the
reduction in the prices of the natural rubbers and excise duty.It
is alleged that it was not considered necessary and/ or essential
to note and record that there are other important input costs,
increase of which has the effect of cost increase of the products.
196. It has been further pointed out that the effect of increase in
price of petro based products has got an adverse effect on the
procurement prices of synthetic Rubber, Nylon Fibers, Carbon
Black etc. which are directly linked to crude oil prices.
Reply of M/s Ceat Limited
197. Ceat in its reply stated that the investigation report dated
25.05.2011 has failed to make out even a semblance of a case of
cartel against it. It has been pointed out that the report itself has
clearly and categorically held that there is a gap between the net
dealer price (weighted average) and the price of market leader
Apollo and that of other companies thereby rebutting the charge
of the cartel against the five tyre manufacturers. For this reason,
it is contended that the report is liable to be rejected and the
proceedings ought to be closed.
198. Objection is also taken on the ground that the provisions of
the Act cannot and does not have a retrospective application.
68
199. Further, it has been submitted that an ‘agreement’ between
competitors is a condition precedent to establish an allegation of
cartel. Reference has been made to the decision of the Supreme
Court in the case ofUnion of India v Hindustan Development
Corporation, (1993) 3 SCC 499 at 531 para 14 to contend that a
mere offering of a lower price itself, though appears to be
predatory, cannot be a factor for inferring formation of a cartel
unless an agreement amounting to conspiracy is also proved. The
investigation report fails to show that there was an ‘agreement’
between the tyre manufacturers. Thus, it is urged that the
proceedings ought to be disclosed.
200. It is the case of Ceat that once an ‘agreement’ is found
amongst players in the same business thereafter the investigation
shall follow to ascertain causation of appreciable adverse effect
on competition in India in terms of the statutory factors laid
down under section 19(3) of the Act. It is alleged that this has not
been done in the report.
201. It is contended that the findings based on ‘price parallelism’,
appear to be in an effort to somehow pin down Ceat when no
action in concert was established. It has been pointed out that
the DG has held that the net dealer price (weighted average) of
Apollo, being the price and market leader for truck/bus tyres,
was much higher than the net dealer price (weighted average) of
the other four tyre companies including Ceat. Further, while
disputing the methodology adopted by the DG and while
affirming that even the net dealer prices (weighted average) of the
other four tyre manufacturers were different and distinct from
each other, the question of price parallelism much less cartel
cannot and does not arise. The participation by tyre companies in
meetings of ATMA is not indicative of cartel because unless the
meetings and/or concerted action categorically indicates that the
participating companies have decided price fixation of tyres and
implemented the same in letter and spirit, the minutes of the
69
meeting of ATMA cannot conclude triggering sections 3(3)(a) and
3(3)(b) of the Act.
202. It is averred that the so called ‘Price Parallelism’ as
highlighted by the DG in its investigation report (which is not
made out) does not substantiate existence of an agreement
between Ceatand other tyre manufacturers.
203. Giving background of the present investigation which was
commenced on the basis of the letter/representation dated
28.12.2007 from AIDTF to the Ministry of Corporate Affairs, it
has been contended that the main grievances of AIDTF relate to
(i) levy of anti-dumping duties on imported truck/bus tyres both
bias and radial, from China and (ii) tyre manufacturers not
passing the benefit of excise duty reduction to tyre users.
204. It has been pointed out that the report has failed to consider
that both the above grievances raised by AIDTF fall outside the
ambit and scope of the MRTP Act and the Competition Act and on
this ground alone, the investigation ought to be closed. It has
been further submitted that in the absence of any particulars of
facts or period for the alleged cartel in the representation, the
investigation report has erroneously proceeded in the absence of
a valid allegation of cartel supported by particulars and the
findings contained therein are clearly contrary to law and the
report ought not be entertained and the proceedings ought to be
closed.
205. Reference has been made to the contentions raised by
AITDF before the DA, which include the contention that there is
cut-throat competition between the domestic producers. This
submission made by AITDF before the DA would demolish any
allegation of cartel inferred from the representation and the
70
question of entertaining the investigation report cannot and does
not arise.
206. Ceat has also accused AITDF guilty of suppression of facts
and forum shopping. It is averred that the information is made by
AITDF whose credentials of having any locus standi as an apex
body representing the manufacturers and consumers is a
questionable one.
207. It has been asserted that on a plain reading of the
information, it is evident that the angst of AITDF is directed
against the application filed by tyre companies through their
association seeking imposition of anti-dumping duty by the DA.
208. It has been further submitted that the application of the
tyre companies represented by ATMA merely petitioned the DA,
duly constituted under the law alleging dumping of tyres by
foreign exporters against the norms spelt out under the relevant
statuteand the rules framed thereunder.
209. It has been argued that the action taken by Ceatis in due
process of law and the orders passed are by an authority
constituted under the law.
210. Further, challenge is made to the findings of the report by
arguing that the DG has failed to disclose in the report the basis
on which he has decided to compare the tyres under investigation
of the tyre manufacturers including Ceat. It has been submitted
that there are a number of tyre sizes which are substitutable for
and comparable with the tyres under investigation. It is alleged
that the DG has proceeded to investigate a few selected tyre sizes
without investigating the comparable tyre sizes of all tyres
manufacturers.
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211. It is the case of Ceat that it has, in fact, passed on the
benefit of excise duty reduction to the dealers. This is stated to be
evident from the price list issued by it. Without prejudice, it is
also argued that no notification or statutory directive was issued
to pass on such benefits to the consumers. Grievance has also
made to the reliance of the reports of the Tariff Commission of
the years 1985 and 1988 by the DG which do not relate to or
have nexus to the period of investigation from the years 2005-
2010.
212. It has been further averred that the DG has wrongly
concluded that the price of natural rubber has increased in 2008
but has fallen in 2009 and again increased in 2010. In fact, it has
been submitted thatthe price has increased from 2005 to 2008
and again risen sharply in 2010. It has been alleged that there
are contradictory figures for prices of natural rubber (weighted
average) in the investigation report.Further, the DG has failed to
disclose on what basis he has arrived at the figures relating to
natural rubber prices (weighted average).It is further stated that
the conclusion arrived at by the DG is totally flawed as he has
failed to consider the wide range of variation in the prices of
natural rubber during the investigation period.
213. Alluding to the finding of the DG that the net dealer prices
(weighted average) of the tyres under comparison of the five tyre
companies were more or less the same with marginal difference
except Apollo tyre, it has been vehemently contended that the
same is clearly erroneous. The net dealer pricewasarrived at on a
simple average basis. Further, the net dealer price of the four tyre
manufacturers is not more or less the same. It has been
contended that the net dealer price of Ceat is distinct from the
net dealer price of other tyre companies and consequentlythe
finding by the DG of price parallelism is not established.
214. Referring to the findings relating to price parallelism, it has
been contended that the same were based on the basis of
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theeconomic analysis that price parallelism existed amongst tyre
companies which is a good measure/ indicator to show that some
kind of information sharing in price had taken place amongst
them. It has been submitted that this finding is patently wrong
and strongly denied. The very basis for the economic analysis by
the DG is faulty and illogical and consequently no such inference
of price parallelism or information sharing in price can be drawn
therefrom. Any allegation of price cartelization cannot be viewed
theoretically but has to necessarily be seen in the constellation of
economic facts relating to the tyre industry. The tyre dealers are
not only dealing with Ceat but also with other tyre companies.
Fierce and intense competition is a feature of the tyre trade. This
has been admitted by AITDF in submissions made before the DA.
The fierce and intense competition between Ceat and other tyre
manufacturers can be demonstrated from the discounts given to
the tyre dealers both on the invoice as well as subsequently by
way of credit notes. This shows the net sales realization made by
the tyre companies including Ceat from the tyre dealers. Ceathas
given discounts to tyre dealers in the range of 5% to 7% during
the period of investigation. Ceat decides on the discounts based
on several factors including overall demand-supply situation, the
desired product positioning, market share, business carried out
by dealeretc. The giving of product discounts by Ceat and other
manufacturers is clearly a weapon of competition which results
in promotion of inter-brand competition in the tyre trade.
215. It has been submitted that in an allegation of cartel, the
condition precedent to pin down Ceat shall have to be existence
of ‘agreement including an action in concert’. In the absence of
existence of an agreement among the tyre manufacturers, the
other issues as highlighted by the DG in investigation report
seem an academic exercise not relatable to the facts in issue. It
has been submitted that the investigation report indicated
discussions by Ceat and other tyre manufacturers at ATMA about
OEM prices being un-remunerative. It has been further
submitted that OEM market is a monopsony and is dominated by
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two major companies i.e. M/s Tata Motors Ltd. and M/s Ashok
Leyland Ltd. In the OEM market, which is distinct and different
from the replacement market, the two OEM bulk buyers are in a
position to dictate the prices to the tyre manufacturers including
Ceat after floating of tender, submission of price quotations,
period of price negotiations and entering into contracts. It has
been pointed out that the prices in the OEM market dictated by
OEM buyers are much lower than the prices prevailing in the
replacement market. In the replacement market, Ceat sells the
product to the tyre dealers at the net dealer price and may also
offer product discounts. Since the dealers are also dealing in
competing products of other tyre manufacturers, Ceat in order to
meet the inter-brand competition in the tyre industry gives
product discounts to the tyre dealers.
216. Ceat has referred to the findings of the DG to the effect that
the actual production of domestic tyre companies has
increasedexcept during the year 2008-09 when there was a
decline of 3% - 20% in actual production of domestic tyre
companies and that corresponding decline in net dealer price was
only 3-5% which implied that companies have not reduced the
net dealer price in proportion to actual production. Challenging
the finding, Ceat has submitted that the rationale advanced by
the DG of production vis-à-vis net dealer price was not
understood. It is stated that when production is reduced owing to
diverse reasons, the cost of production will go up owing to the
fixed cost and expenses. Hence, it is argued that lower
production translates to higher cost.
217. It has been further submitted that the net dealer price is
determined by cost of production, economic factors of demand
and supply, the product under consideration, the competition vis-
a-vis the particular brand and acceptability in the market, tariff
increases etc. Hence, the co-relation between the production
capacity and net dealer price is misplaced.
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218. It has been clarified that the reduction in the production for
the years 2008-2009 of Ceat was on account of losses incurred
and recessionary trend, which was a global phenomenon and not
limited to India. Ceat was constrained to stop production at its
manufacturing units accounting for a loss of 5% in production.
The increase in raw material cost with low sales resulted in
negative results. In any event, it has been submitted that the
production of truck tyres of Ceat had gone down in 2007-08 by
4% and in 2008-09 by 9.4% and consequently, the conclusion
arrived at by the DG that the production of domestic tyre
companies had increased except in 2009, would not hold good for
the Ceat.
219. Referring to the capacity utilization analysis, it has been
submitted that the concept of full capacity is an idealistic notion.
The capacity utilization is determined by the market trends of
demand supply and movement of the product. The products
manufactured by the tyre manufacturers are easily available off
the shelf. Hence, the lower capacity realization is not with the
intent to lower supplies as alleged. It has been pointed out that
the report categorically states that the actual production of the
tyre companies had increased (except for the year 2008-09) and
hence the allegation of limiting supplies is in total contradiction
to the assumption of limiting supplies.
220. Alternatively, it has been submitted that there are a number
of factors which govern the capacity utilization by thetyre
companies such as expansion of capacity, demand supply gap,
preventive and breakdown maintenance; change of mould on
account of number of SKUs (Stock Keeping Unit) produced by a
tyre manufacturer etc.
221. Pointing to the findings of the DG as regards CEAT that it
has been able to reduce the negative margin from Rs 802 to Rs
216 in the year 2009-10, and that the cost of sales shows
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increasing trend year after year and there has been sharp
increase during 2008-09 in almost all companies which could be
due to increase in the price of natural rubber. Theconclusion
arrived at is that it implied that the companies have the motive of
making profit and hence have been able to earn positive margins
in most of the period in 5 years.
222. It has been argued that the reasoning of the DG is
misplaced. It has been submitted CEAT is concerned for its
stakeholders and therefore, is in the tyre business to earn
reasonable profits. This cannot by any stretch of imagination be
construed as anything but healthy business practice. It is argued
that the net profits/ net sales ratio of Ceat cannot be said to be
‘unreasonable’.
223. It has been further alleged that the DG has conducted the
present investigation in an incomplete manner without taking
into account all aspects of cost which includes the cost of other
raw materials and overheads, which have to necessarily be taken
into account for arriving at the cost of production. It has been
stated that while natural rubber is one of the important
components of a tyre manufacturing process, it accounts for
around 40% to 43% only of the total cost of the tyre. The balance
of 57% to 60% of the raw materials consists of synthetic rubber,
carbon black, nylon fabrics, chemicals and other raw material. It
has been pointed out that the base material of these raw
materials is crude oil. It is averred that the cost of petro based
raw materials such as synthetic rubber, carbon black, Nylon
Fabrics etc. is impacted by rise in crude costs, and also the
exchange rate which in turn has a direct impact on the cost of
production of Ceat. It has been specifically pointed out that the
additional impact which Ceat has to bear and which no other tyre
company bears, is the levy of octroi duty of 2.5% to 5% on all raw
material/ consumables/ semi-finished product in the State of
Maharashtra. This puts Ceat at a disadvantage in terms of its
competitors.
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224. It has been submitted that the wages cost of Ceat has
always been high due to location of its both the plants in the
State of Maharashtra. Additionally, it has been pointed out that
the Dearness Allowance Index on an average has gone up from
3122 in 2005 to 4558 in 2010 i.e. increase of 46% over the period
under investigation. The increase in dearness allowance along
with the impact of long term settlement done by Ceatduring2009-
10 has significantly increased the overall wages cost during the
investigation period.
225. It is the case of Ceat that it has to incur heavy repairs and
maintenance cost because of the age of its two plants which are
30-35 years old. Consequently, it also has heavy burden of fixed
cost on the cost of production on account of lower productivity of
its said two aging plants.
226. CEAT denied in its reply that there was any significant
increase in margins from 2006 to 2010.
227. It has been pointed out that the DG proceeded to observe
and conclude that all companies have been operating on high
margins barring some exceptions. This statement of the DG has
been described as inherently contradictory as far as Ceat is
concerned.
228. It has been submitted that the DG wrongly presumed that
Ceat has direct dealings with the end consumers and is in a
position to pass on the benefit to the end consumers. During
investigation period, Ceat had clearly stated that it deals with
tyre dealers on a principal to principal basis and the tyre dealers
in turn sell the products to the end consumers. The margin of the
dealers is not known to Ceat although the dealer is at liberty to
sell at a price below the MRP. The only customers that
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Ceatdirectly deals with are the OEMs and Fleet owners including
the State Transport Undertakings.
229. Referring to market share analysis, Ceat has pointed out
that the DG found no major change in the market share during
2005-2010 (reduced by 1% in 2009-2010),it found five
manufacturers accounting for 95% of market share showing high
concentration and implying high dependence of OEMs/
replacement market on five tyremanufacturers.These conclusions
have been described as incorrect by Ceat.
230. It has been pointed out that the tyre industry is a capital
intensive industry. However, it has been stated that there are no
barriers to the entry of new players in the market other than the
investment cost. The industry has seen international companies
such as Bridgestone and Michelin which have entered the
market. Bridgestonehas a factory in the state of Madhya
Pradeshwhich produces passenger car radials. Michelin is
importing approximately 15-20000 TBR every month for sale.
They have also announced their plans to set up a production
facility in Tamil Nadu. Apart from these two global tyre majors,
other leading players like Yokohama (in advanced stage of
purchasing the land in the State of Gujarat for setting up a new
plant), KumhoandHankooj, among others, are also selling PCR in
the Indian market through distributors. They have been present
in the Indian market for many years. Recently even Continental
Tyres has announced its entry into the Indian market.
231. It has been highlighted that the report of the Centre for
International Trade (JNU report) itselfcategorically states that the
data base was too small to form any conclusions. Similarly, it is
contended that the data used in Tariff Commission reports
merely indicated a possible collusive price behavior but did not
conclude that there was one and rightly so, as there exists no
78
cartel. Mere presumption on the basis of figures cannot form the
basis for impinging an allegation of cartel, asserts Ceat.
232. Summing up, Ceat has pointed out that the domestic tyre
manufacturers have never adopted a collective strategy to
produce low price tyres. Ceathasnot launched any low cost
truck/ bus tyres. Nevertheless, it is asserted that had it been
technically possible, Ceat would have been most interested to do
for its business interest. Ceatfiled anti-dumping petition before
the DA for the protective benefit it is entitled to under the
relevant laws of the country.Ceat has not black listed any of the
importer of Chinese tyres and it has never shared its cost data
with its competitors, neither for anti-dumping petition as the
same are confidential in nature and very sensitive in nature for
its business. It has been clarified that the same were submitted
to lawyer directly and not through ATMA.
233. Referring to the role played by ATMA, Ceat has submitted
that ATMA does not have any role to play in managing its affairs
as it has its independent marketing strategy, and is
independently competing with other tyre manufacturers and
takes its decisions independently including the fixation of prices.
Certain common issues faced by the tyre industry are discussed
at ATMA meetings, which are within the realm of the law,
submits Ceat. It has been fervently submitted that the allegation
of ‘close knit family’ is farfetched and is not borne by the facts
adduced.
234. In view of the submissions made above, it has been prayed
that Ceat has not indulged in any activity that falls within the
purview of section 3(a) and/or (b) of the Act and therefore the
present investigation report dated 25.05.2011 of the DG be
rejected and the proceedings closed with costs on AITDF and
name of Ceat be deleted from the cause title of the inquiry.
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Reply of M/s Michelin India Tyres Pvt. Ltd.
235. At the outset, Michelin has pointed out that the DG has
investigated only the relevant market of Truck-Bus (TB) tyres and
concluded that there exists a cartel amongst the top five domestic
tyre manufacturers, who are members of ATMA. The DG has
limited his findings only to the criteria of pricing factor in terms
of cost inputs and the fluctuation in prices of natural rubber. It
has been further stated that the data relied upon by the DG
clearly indicate that the five domestic manufactures have been
fixing output to retain their respective market shares. It has been
averred that in a period of five years from 2005-2010, the
production data of the five domestic manufacturers exhibit the
following trends:
(a) The five domestic manufacturers have increased
installed capacities during the period.
(b) The percentage of capacity utilization has decreased in
spite of large increase in capacity by two of the
manufacturers during the period.
(c) Each manufacturer’s production as a percentage of the
total production by these five domestic tyre manufacturers
has remained almost constant during this period.
236. Based on the above trends, it has been contended that there
can be no economic justification for such behavior. No profit-
maximizing firm will invest in increasing capacity which is not be
fully exploited over a period of five years. This behavior is against
the self-interest of the five domestic tyre manufacturers. The
rationale for this behavior can only be cartelization.
237. Michelin has given the details of the installed capacity of
each of the top five domestic tyre manufacturers over a period of
five years as follows:
Installed Capacity (In lakhs)
80
2005-06 2006-07 2007-08 2008-09 2009-10
Apollo 79 88 97 99 132
JK Tyre 63 76 87 88 91
MRF 32 34 33 34 36
Birla 12 13 15 14 14
Ceat 43 43 45 45 47
238. From the above, it is sought to be contended that in terms
of installed capacity, the growth for each of the players has been
uniform, barring one year 2009-10, when Apollo made a huge
increase (its installed capacity increased from 99 lakhs to 130
lakhs). It has also been pointed out that JK Tyre has also been
steadily increasing its capacity. Rest of them i.e. MRF, Birla and
Ceat showed gradual increase in their installed capacities as well.
239. Michelin has also given the production details of TB tyres by
the five domestic manufacturers as follows:
Production (In lakhs)
2005-06 2006-07 2007-08 2008-09 2009-10
Apollo 71 79 89 86 105
JK Tyre 64 70 75 75 79
MRF 24 27 27 27 32
Birla 11 12 14 11 14
Ceat 39 39 38 34 38
Total
Production
208 226 243 233 269
240. From the details, it has been pointed out that in terms of
market share the said players have captured almost 96% - 97%
of the market over the period of 2005-10.
241. Michelinhas also given a table below exhibiting the
production of each of the five major players (ignoring smaller
producers) as a percentage of the total production in the market,
which is a close proxy for their market shares. It has been stated
that in spite of a massive increase is installed capacity, Apollo
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continued with about the same level of production vis-à-vis its
four competitors. The same holds true for all the other four major
domestic manufacturers, submits Michelin.
Production in Percentage
2005-06 2006-07 2007-08 2008-09 2009-10
Apollo 34 35 37 37 39
JK Tyre 31 31 31 32 29
MRF 12 12 11 12 12
Birla 5 5 6 5 5
Ceat 19 17 16 15 14
242. From the above, it is sought to be evidenced that the five
major domestic manufacturers have maintained their relative
production levels during this five-year period.
243. It has also been submitted that even CESTAT in its order
has noted Designated Authority’s finding that despite growth in
demand, growth in production has declined. The relevant extract
has been reproduced to the following effect:
…..The capacity has increased from 26270 MTs to 37636
MTs and the production has increased from 18622 MTs to
27364 MTs and therefore the capacity utilization has also
increased from 70.89% to 72.71%. However, the DA has
noted that despite growth in demand growth in production
has declined.
244. From the above submissions, it is sought to be deduced by
Michelinthat (a) All the five major domestic TB tyre
manufacturers have added to their installed capacities over a
period of five years (2005-2010) and (b) There exists a parallelism
in terms of output amongst the players in question as is evident
from their production numbers as well as their respective shares
as against total production amongst themselves.
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245. It is urged that the maintenance of the relative position in
terms of production cannot be explained by interdependence in
view of the difference in the installed capacities together with the
difference in increase in their installed capacities. This is a clear
pointer of an agreement between the manufacturers since
without such a consensus, it is impossible for players to reach
production parallelism, especially when all of them have
increased their capacity every year.
246. It has been submitted that explicit collusion occurs where
undertakings agree, collectively, to exploit their joint economic
power and to improve their profitability by raising prices,
restricting output, sharing markets or rigging bids. Successful
cartels raise the joint profits of all the firms in the industry,
maintain the parties’ respective position on the market and
achieve pricing stability or an increase in prices. They, thus,
enable the member firms to enjoy market power and profits over
and beyond what would otherwise result and to reproduce
artificially the market outcomes and welfare loss arising on a
monopolized market. Hardcore cartel activity is most likely to be
successful in oligopolistic markets i.e.markets having only a
small number of producers or sellers.
247. Michelinhas also referred to the various economic principles
underlying the behavior of members of the cartel. Reference has
also been made to the proceedings before DA and CESTAT. As a
detailed reference has already been made to these proceedings, it
is not necessary to reproduce the same herein again.
248. Referring to a study carried by OECD, it is sought to be
contended that anti-dumping measures can be abused for
protectionist purposes. It is the case of Michelin that the way
anti-dumping laws are structured, domestic producers can enlist
the help of the Government to prevent foreign competition even
when there has been no dumping. Michelin submits that the law
83
allows producers to unethically use anti-dumping measures to
batter the competition.
249. In view of the foregoing, Michelincontends that it can be
safely assumed that domestic tyres manufacturers have not only
tried to limit the quantity by fixing outputs but also by creating
hurdles on the path of tyre importers through concerted action in
initiating anti-dumping proceedings.
Reply of other parties
250. As noted earlier, on the request of counsel for M/s Modi
Tyres Company Pvt. Ltd. and M/s Bridgestone India Pvt. Ltd., the
Commission vide its order dated 03.11.2011 struck off their
names from the array of parties and as such it is not necessary to
record their submissions in the order.
251. M/s Goodyear India Limited also filed its brief reply stating
that the report of the DG did not name it as a contravening party
and as such its name should be deleted from the proceedings and
the array of parties. It has been submitted that no finding has
been recorded against Goodyear by the DG in the report. It has
also been pointed out that no investigation was conducted
against it by the DG (I&R), MRTP Commission on the basis of
information supplied by AITDF in the year 2008. It has also been
highlighted that even the informant AITDF did not refer Goodyear
in the information. It is however admitted that Goodyear is
member of ATMA and does, in fact, attend meetings of ATMA held
on different dates to discuss common issue faced by the tyre
industry. In the result, it has been prayed that the name of
Goodyear be deleted and removed from the present proceedings.
252. M/s TVS Srichakra has filed a letter stating that it is not
manufacturing any truck or car tyre from the beginning and it is
84
involved in manufacturing 2-wheeler tyres and tubes and off-the-
road tyres mainly for exports.
253. None appeared on behalf of M/s Falcon Tyres Ltd. and M/s
Dunlop India Ltd. No appearance was also entered on behalf of
Directorate General of Anti-Dumping & Allied Duties.
254. In view of the foregoing and in the light of findings
recorded by the DG of contravention against J K Tyres, CEAT,
MRF, Apollo, Birla Tyres and ATMA, the Commission deems it
appropriate to examine the conduct of these parties.
255. The Commission has also heard the oral submissions of the
parties.Shri S P Singh, Convenor, AITDF made submissions on
behalf of AITDF. Shri K. Venugopal, Shri A N Haskar, Sr.
Advocates; ShriAdityaNarain, ShriManasChaudhuri, Ms.
PallaviShroff, Shri Harman Singh Sandhu, ShriPinakiAddy, Shri
Amitabh Kumar, ShriGautamShahi, Shri Ravi Sekhar Nair and
Ms. Nidhi Singh, Advocates made oral submissions for the
appearing parties.
Issues for determination
256. In view of the contentions raised by the parties and the
findings recorded by the DG, following issues arise for
determination:
(i) Whether the Commission has the jurisdiction to proceed
with the matter under the provisions of the Competition Act,
2002?
(ii) Whether the tyre manufacturers have contravened the
provisions of section 3 of the Act?
Determination of Issue No.1
85
Whether the Commission has the jurisdiction to proceed with
the matter under the provisions of the Competition Act,
2002?
257. The opposite parties have contended that present case arose
before the MRTP Commission from the complaint of the AITDF
dated 28.12.2007 referring to the alleged anti-competitive
practices of the tyre manufacturing companies, the DG had no
jurisdiction to extend the period of investigation beyond year
2007 and his report is liable to be rejected on this ground only. It
is also contended that the Act has no retrospective operation and
as such, the Commission does not have the jurisdiction to look
into the present matter.
258. It is true that the present inquiry was instituted with
reference to the allegations made in the year 2007. However, the
DG has examined the conduct of the Opposite Parties from year
2005-06 to 2009-10 and has found that alleged anticompetitive
conduct of the parties which started prior to coming into force
the relevant provisions of the Competition Act continued even
after the date when these provisions were notified i.e., May 20,
2009.No doubt the period of contravention of the provisions of
the Competition Act, 2002 has to be reckoned only from the date
of its enforcement but this does not imply that either the DG or
the Commission cannot examine the conduct of parties post
notification where the information/complaint was filed before the
MRTP Commission. The Commission, while passing order under
section 26(1) of the Act, did not specify any period for the reason
that at that stage it would not be desirable to curtail the period of
examination by the DG. As the proceedings before the
Commissionare inquisitorial in nature, it would not be
appropriate to restrain the DG from fully examining the
allegations of cartelization in the tyre industry. As such, it is
difficult to agree with the submissions made by the opposite
parties that the proceedings are vitiated on any of the grounds so
urged.
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259. Given this fact, the plea of the opposite parties that the DG
had no authority to examine their conduct for a period
subsequent to the alleged period of contravention has no force
and is liable to be rejected.
260. Further, the Commission is of opinion that the preliminary
objections taken by the opposite parties regarding jurisdiction of
the DG and/or the Commission are contrary to the scheme of the
Act and the legal position on this aspect is quite clear. In this
regard, it is also noted that Hon’ble High Court of Delhi in W.P.
(C) 6805/ 2010, Interglobe Aviation Ltd. v. Competition
Commission of India decided on 06.10.2010 has held on similar
issue that where the investigation by the DGIR, MRTPC remained
incomplete and the matter did not crystallize into a ‘case’ before
the MRTPC, it was not incumbent on the DGIR, MRTPC to
transfer the case to the Competition Appellate Tribunal and not
to the Commission. This view was reiterated by the Hon’ble High
Court of Delhi in W.P. (C) 7766 / 2010, Gujarat Guardian Ltd. v.
Competition Commission of India decided on 23.11.2010. In this
case, the petitioner advanced the argument that as the matter
was pending before DGIR, MRTPC the case ought to have been
transferred to Competition Appellate Tribunal and not to the
Commission. It was also contended that the Commission had no
power to pass order under section 26(1) of the Act in such matter
and that the Commission had to proceed under the provisions of
the MRTP Act. The Delhi High Court rejected the arguments
raised by the petitioner and held that “This Court finds that since
the investigation was incomplete the matter was rightly
transferred to the CCI. On further consideration of the material
on record the CCI formed a prima facie opinion to proceed under
Section 26(1) of the CA. This was not contrary to Section 66(6) of
the Competition Act, 2002. It is possible in the course of
investigation that the DG, CCI forms a prima facie opinion to
proceed under the provisions of the CA, 2002 itself. There is no
illegality per se in such action of the DG, CCI.”
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261. The Commission notes that in the present matter the DGIR,
MRTP Commission undertook the investigation which was still
pending when the MRTP Act, 1969 was repealed vide ordinance
dated 14.10.2009. As the investigation had not culminated into a
‘case’ the matter was rightly transferred to the Commission by
the DGIR, MRTPC invoking the provisions of section 66(6) of the
Act as the allegations involved were related to restrictive trade
practices. Even a plain reading of section 66(6) of the Act clearly
demonstrates that on receiving the matters where investigation
was pending, the Commission may order for conduct of the
investigation in the manner as it deems fit.
262. Furthermore, the Commission has not been conferred with
any power to adjudicate any matter invoking the provisions of
repealed MRTP, Act. This premise becomes clear when the
provisions of section 66(6) are contrasted with the provisions of
section 66(3) of the Act. Whereas the Competition Appellate
Tribunal has been specifically conferred power to adjudicate
cases pertaining to monopolistic and restrictive trade practices
pending before MRTP Commission in accordance with the
provisions of repealed MRTP Act under section 66(3) of the Act,
no such power has been given to the Commission under section
66(6) of the Act. In the backdrop of the provisions of the Act as
analysed above, the Commission finds that there is no illegality in
entertaining and examining the present case under the
Competition Act, 2002 in which the investigation was pending
before the DGIR, MRTPC before the MRTP Act was repealed.
263. In this connection, a reference may be made to the decision
of the Hon’ble High Court of Bombay in W.P. No. 1785/ 200,
Kingfisher Airlines Ltd. v. Competition Commission of India decided
on 31.03.2010 where it was held that though the Act is not
retrospective, it would cover all agreements covered by the Act
though entered into prior to the commencement of the Act but
sought to be acted upon now i.e. if the effect of the agreement
continues even after 20.5.2009.Thus, even in cases where the
alleged anti-competitive conduct was started before coming into
88
force of sections 3 and 4, the Commission has the jurisdiction to
look into such conduct if it continues even after the enforcement
of relevant provisions of the Act.
264. In the present case, practices of the parties alleged to be
anti-competitive have been found by the DG to be still continuing
and there is nothing on record to contradict the same.
Accordingly, the Commission is of the considered view that in the
light of legal position as discussed above there is absolutely no
illegality in the proceedings in the present case and the
arguments and the contentions of the parties on this aspect have
no force.
265. The Commission notes that in the present case, the
investigations were initiated on the basis of complaint of AITDF
dated 28.12. 2007. As the investigations under the MRTP Act
could not be completed, the matter was transferred to the
Commission in terms of the provisions of section 66 of the Act. In
the meantime, the provisions relating to anti-competitive
agreements and abuse of dominant position of the Act were
notified, the conduct of the parties has been examined by the
Commission post such notification of the provisions.
266. It may also be noted that though ATMA was not specifically
mentioned in the order passed by the Commission under section
26(1) of the Act, the DG while investigating the matter has also
taken into consideration the role andconductofATMA. The DG
and the Commission have given ample opportunity to the ATMA
to explain its conduct. Therefore, no prejudice can be said to
have been caused to ATMA on this count.
267. It is also pertinent to note that the DG examined the
conduct of the parties in the present case spanning from year
2005 to 2010 for delineating the market construct and
conducting competitive analysis of tyre industry in a holistic
perspective, though as noted above for the purpose of
determining the period of contraventiontheconduct of the parties
89
can only be taken for a period starting from 20.05.2009 i.e. the
date on which the relevant provision of the Competition Act, 2002
were notified. As has been seen above, the Commission does not
have power to adjudicate any matter invoking the provisions of
the repealed MRTP Act, therefore, in the present matter the
relevant period for the purposes of determining the contravention
of the parties under inquiry will commence only from the date of
enforcement of section 3 of the Act.
268. In view of the aforesaid and after dealing with
thejurisdictionalissues, the Commission proceeds to deal with the
substantive issue arising for determination in the present case.
Issue No.2
Whether the tyre manufacturers have contravened the
provisions of section 3 of the Act?
269. Before examining the issue, it would be appropriate to delve
briefly on the evolution and background to understand market
construct and structure of tyre industry.
Evolution and Background
A brief glimpse of the evolution of the tyre industry presents
interesting insights into the sector which has grown from a
purely importing industry to domestic manufacturing capability
over a century shaped by the policy regimes prevalent at different
times in the country, pre and post-independent India. The form of
development which evolved from foreign dominated companies to
Indian companies displayed characteristics of limited players
where technological and high fixed capital cost tended to restrict
the number of players reflected in the prevailing structure of the
industry. The evolution also shows the close links of this industry
with foreign players while continuous threat of imports that have
been reckoned by domestic companies reflective of the
competitive constraints of a tradable commodity.
90
Structure of Tyre Industry
270. The Indian tyre manufacturers have grown to produce the
complete range of tyres used in automotive industry for trucks,
buses, passenger cars, jeeps, light trucks, tractors, two and three
wheeler vehicles in tandem with growth in and diversity of the
automotive/transport sector.
271. There are two categories of tyresviz. radial and non-radial.
The non-radial category is known as bias or diagonal or cross ply
tyres. The categorization is based on the load-inflation pressure
relationship prescribed by the Indian Standards.
272. Bias tyres are nowadays mostly used in buses and trucks
and the passenger cars have factory fitted radial tyre. Indian tyre
industry is predominantly a cross ply (or bias) segment which is
now moving towards radialization.
273. Growth of radial tyres in the car segment is enormous owing
to their direct use by the Original Equipment Manufacturers
(OEMs). However, in the bus and truck segment radialization is
limited and is still dependent on cross ply (bias) segment. Tyre
manufactures have a vast network of dealers, marketing agents
etc. which enables the consumers to have easy access even at far
flung areas. Tyre is used along with the tube which is then fitted
over the wheel rim. A rubber flap is used between the tube and
the wheel rim to prevent tube burst on account of friction. Tyre,
tube and flap are sold together as well as individually. With
technological advancement nowadays tubeless tyres are being
increasingly used by the automobile industry. The tyre
manufactures cater to the following major customer segments
either directly or indirectly through dealers/ marketing agents:
(i) Original Equipment Manufacturers (OEMs)
(ii) Replacement Market (aftermarket)
91
(iii) Export Segment
(iv) StateTransportUndertakings (STUs)
274. The OEMs comprise of automobile manufacturers who
source their tyre requirement directly from the tyre manufactures
in huge volume and hence are being dealt directly by the tyre
manufacturers through negotiations. In the replacement market,
tyre manufacturers sell the tyres through widespread dealer
distribution network either through exclusive dealers of the
companies or through multi company dealers. The tyre
companies are directly supplying to Government institutions and
to State Transport Undertakings (STUs) through the tender
system. The demand in the replacement market depends on the
level of economic activity, usage, age of the vehicle, quality of the
existing road infrastructure, overloading etc.
275. The tyre manufactures are also exporting tyres to different
countries through dealers in exporting countries. Some tyre
companies import tyres from foreign manufacturers or
collaborators for domestic sale in Indian market. These imported
tyres are then sold in Indian market along with the Indian tyres
through the dealers.
276. Having taken note of the way tyre industry has evolved and
its structure, the next step is to examine the present allegations
of cartelization in tyre industry. The first step is to understand
and bring out the structural factors which may be conducive for
cartelization and thereafter circumstantial/direct evidences can
be considered for arriving at a conclusion on the allegations.
Structural Factors
277. It is commonly known that even though cartelization can
occur in any industry, there are some industries in which it is
more likely,due to particular features of the industry or of the
92
product involved. Such characteristics make it easy forthefirmsof
the industry to control the market. The Commission is of the view
that the probability of cartelization gets higher if the following
structural factors are present in any product market:
Highly Concentrated Market
278. It appears from the report of the DG that the five domestic
tyre companies have consistently accounted for around 95% of
the market share of the total production implying a very high
concentration in the industry. This fact is also corroborated from
the information available on the website of ATMA. As few large
players control majority of the market in India, the market
becomes oligopolistic in nature. In an oligopoly (since there are
not many firms), there is a high degree of interdependence among
firms. Each firm’s price and output decision anticipate the
probable actions of other firms at any given time. Each of the firm
has to concern itself with the strategic choices of its competitor.
These strategic choices can be price, quantity or quality.
In a market which is oligopolistic in nature, it is more likely that
each market player is aware of the actions of the other and
influences each others’ decisions. No doubt, interdependence
between firms is an important characteristic of such a market
which would mean that each firm in such a market takes into
account the likely reactions of other firms while making
independent decisions particularly as regards prices and output.
Thougholigopolistic markets can lead to competitive outcomes,
the outcomes may not always be market driven but rather the
result of concerted effort or collusion. The interdependence
between firms can lead to collusion-both implicit as well as
explicit. Knowing that overt collusion is easily detected, firms
often collude in a manner which leads to non-competitive
outcomes resulting in higher prices than warranted by pure
interplay of market forces.
93
279. Thus, high concentration may provide a structural
reasoning for collusive action resulting in parallelism (price or
output), yet it is very important to differentiate between “rational”
conscious parallelism arising out of the interdependence of the
firms’ strategic choices and parallelism stemming frompurely
concerted action. Thus, inferring of cartels would require further
evidences. Economic theory has demonstrated convincingly that
“conscious parallelism”, is not uncommon in homogeneous
oligopolistic markets. Competing firms are bound to be conscious
of one another's activities in all phases, including marketing and
pricing. Aware of such outcomes especially where there is little
real difference in product the Commission is of the opinion that it
is quite probable that in many such instances, conscious
parallelism may be dictated solely by economic necessity.
Avoidance of price wars is a common instance where this takes
place.
Demand & Supply Conditions
280. A constant, predictable flow of demand from the
customersalso tends to increase the risk of collusion. The tyre
industry is cyclical and seasonal in nature. According to an ICRA
Report,
1
nearly 42% of tyre demand is dependent on automotive
production, which due to its cyclical and seasonal character is
quite predictable. In the present case, the tyre manufacturers
must have been aware of the fact that there would be a steady
flow of demand due to the rapid growth in automobile
industryparticularly in the year 2009-2010 as well as in
replacement market leading to some sort of predictability of
demand. However, on the other hand there is a persistent threat
to demand from retreaded tyres which are viewed as animportant
substitute for new tyres.As per ICRA Report, the price of
retreaded tyres is between 30-80% lower than the price of new
tyre. Around 40-50% of discarded car tyre and 60-80% of
1
ICRA Limited, was established in 1991, and was originally named Investment Information
and Credit Rating Agency of India Limited (IICRA India), is an Indian credit ratings agency
94
discarded truck tyres are suitable for retreading. The annual
retreading market is estimated at around 14-15 million. The
truck and bus segment accounts for around 58% of retreading
market.Thus, a flourishing retreading tyre market, in the
replacement segment brings some element of unpredictability in
demand.
281. On the supply side, the Commission notes that the industry
players lobbied hard for imposition of anti dumping duty to
restrict supply from imports and increase their market power, by
removing any threat from imports. However, what is important in
this context isto see how successful have the industry players
beento achieve the desired outcomes from such lobbying
practicesin restricting the supply of imported tyres. As per CMIE
2
data, the imports in terms of
3
volumes have shown an increasing
trend right from 2005-06 to 2010-11. The percentage of imports
to total tyre production has also been increasing throughout the
period except 2009-10, when there was a marginal fall and that
was also primarily due to sharp increase in tyre production.
Thus, it seems that imports remained a competitive threat even
with anti-dumping duty prevailingand the threat increased with
removal of duty leading to jump in imports in 2010-11. The
trends as obtained from CMIE database are as under:
Units 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
Total Tyre
Production
In 000’s 66031.59
74033.70
81103.03
82106.68
97607.71
119195.59
Total Tyre
imports from
the world
(Volume)
In 000’s 1466.06
2587.19
3333.76
4064.18
4767.01
8844.60
Total Tyre
imports as %
of Total
Production
In %age 2.22
3.49
4.11
4.95
4.88
7.42
2
Centre for Monitoring Indian Economy
95
Thus, the above analysis shows how the apparent concerted
efforts of the tyre manufacturers to restrict imports have not been
successful as imports have shown a secular upward trend and
imposed competitive constraints.
Homogeneous Product
282. The products manufactured by these companies are
homogenous in nature and hence substitutable. This structural
factor may help the manufacturers to collude than compete.
283. No significant Technological changes.
284. Over the years leading to the period under investigation
there has been no significant technological change in the
manufacturing of cross ply tyres used in Trucks and Buses.This
factor is further reinforced from the information furnished by
ATMA on its website wherein it has been shown that radialization
in Truck and Bus segment is merely 15% in comparison to 98%
in passenger cars.
285. However, it needs to be pointed out that the pace
ofradializationin the Truck and Bus Segment has been high in
the recent years, albeit from a low base.The import figures of
Truck and Bus Radials (TBRs) have gone up from 50 thousand
tyres in FY 2004-05 to 1127 thousand tyres in FY 2009-10. The
tyre manufacturers have also lined up large investments in TBR
facilities which also points to increasing radialization. The ICRA
Report estimates that around 60% of Industry CAPEXamounting
to Rs.17,500Crore would be made in TBR radializationsegment in
the period 2010-2013.
Dependence of Customers
286. OEMs procure tyres from domestic tyre manufacturers and
also import from various countries based on their requirement.
As the penetration of radial tyres in Truck and bus segment has
96
been pretty low it can be noticed that OEMs are dependent on the
supply of cross ply tyres from the domestic tyre
manufacturers.However, it is noted that the OEMs exert
substantial countervailing buying power also because of the fact
that the OEM demand constitutes around 26% for Commercial
Vehicle tyres and 44% of total demand for domestic tyre industry.
This fact has been reflected in submissions of various
manufacturers also.
287. As far as the replacement market is concerned, it has
already been noted that the retreading market provides an
alternative to consumers and a competitive constraint on tyre
manufacturers.
Entry Barriers
288. Indian tyre market is largely cross-ply oriented whereas
global tyre market is radial oriented. It has been seen that despite
market being highly concentrated and Truck and Bus segment
constituting a major share of demand in terms of value, no new
entry in the cross ply segment has taken place leaving the entire
market to the existing players.However these, significant entry
barriers arisedue to thehigh capital requirements to setup a tyre
manufacturing plant. As per ICRA Report, a plant with an annual
capacity of 1 million cross ply Truck and Bus Tyres cost around
Rs.6 billion.
Active Trade Association
289. Trade associations can be used as legitimate forum for
members of a business to promote standards, innovation and
competition. However, trade associations remain vulnerable to
stepping beyond the limits placed by competition law because, by
definition, they involve meetings, discussions and cooperation
amongst various-often virtually all-competitors in a particular
line of business. The Commission examined this aspect as trade
97
association can, as observed in other cases, be an active
facilitator for cartel behaviour.
290. Tyre manufacturing firms have an association under the
name Automotive Tyre Manufacturers’ Association (ATMA) as the
representative body of automotive tyre industry in India. All five
large tyre companies representing over 90% of production of tyres
in the country are its members.The Automotive Tyre
Manufacturers’ Association (“ATMA”) was set up in 1975, and is
registered under the Companies Act.The evidence gathered by the
DG has shown that they frequently meet at the platform of ATMA
to discuss and perhaps even share sensitive business
information. The Association also regularly publishes data on
production and export of various categories of tyres. Besides, the
Association prepares status notes on various subjects which are
of relevance to tyre industry, such as, Tyre Retreading Industry,
Regional Trade Agreements & Rules of Origin, Anti-Dumping, etc.
These facts are corroborated from the information available on
the website of ATMA. The information available there also
proclaims that with the guidance of the Managing Committee the
ATMA functions through various committees set up, consisting of
different disciplines, such as, Marketing, Export, Purchase (Raw
Material), Taxation, Technical etc. Thus, it is noticed that the
firms have an active trade association engaged in the above
activities.
291. Thus, it is seen that there are some factors which may be
conducive to cartelization but they may be diluted due to other
factors as has been pointed out in the above discussion. The fact
that market concentration is very high with entry barriersand the
product is homogenous, support cartel formation, buthigh
bargaining powers of OEMs due to the volumes, options to
replacement consumer to retread, increasing radialization,
imports effectively being cheaper even in the brief period of anti
dumping duty go against sustaining a cartel structure.
98
Aconclusive finding however, can only be made after considering
other evidences including circumstantial evidences.
Whether Agreement can be inferred from circumstantial
evidence?
292. A lot has been made by the opposite parties of the fact that
the DG has failed to gather any direct evidence to support his
findings. Reliance is also placed upon a decision of the
Commission in the case of NeerajMalhotrav. Deutsche Post Bank,
Case No. 05 of 2009 to contend that to establish a finding of
infringement under section 3(1) read with 3(3) of the Act, the
agreement must be established unequivocally.
293. In view of the provisions of the Act, as highlighted below, in
this respect, the Commission observes that the plea is
misconceived.
294. Section 3(1) of the Act prohibits any agreement with respect
to production, supply, distribution, storage, acquisition, or
control of goods or provision of services which causes or is likely
to cause an appreciable adverse effect on competition within
India. Further, section 3(2) of the Act provides that any
agreement in contravention of this provision shall be void.
295. The term ‘agreement’ itself is defined in section 2 (b) of the
Act. For felicity of reference, the same is quoted below:
Section2(b)."agreement" includes any arrangement or
understanding or action in concert,-
(i) whether or not, such arrangement, understanding or action is
formal or in writing; or
(ii) whether or not such arrangement, understanding or action is
intended to be enforceable by legal proceedings;
99
296. It may be noticed that the definition of the term ‘agreement’
as given in the Act includesany arrangement or understanding or
action in concert whether or not formalor in writing or is intended
to be enforceable by legal proceedings. Clearly, the definition
which is inclusive and not exhaustive is a wide one.
Theagreement does not necessarily have to be in the form of a
formal documentexecuted by the parties.
297. As is seen from the construct of the aforesaid provisions,
there is no need for an explicit agreement for existence of an
‘agreement’ within the meaning of the Act. The same can be
inferred from the intention or conduct of the parties. In the cases
of conspiracy or existence of any anti-competitive agreement,
proof of formal agreement may not be available and the same
may be established by circumstantial evidence alone. The
concurrence of parties or the consensus amongst them can,
therefore, be gathered from their common motive and concerted
conduct.
298. The Commission observes that existence of a written
agreement is not necessary to establish common understanding,
common design, common motive, common intent or commonality
of approach among the parties to an anti-competitive agreement.
These aspects may be established from the activities carried on
by them, from the objects sought to be achieved and evidence
gathered from the anterior and subsequent relevant
circumstances. Circumstantial evidence concerning the market
and the conduct of market participants may also establish an
anti-competitive agreement and suggest concerted action.
Parallel behavior in price or sales is indicative of a coordinated
behavior among participants in a market.
299. No doubt the parties to such an agreement may offer their
own sets of explanations behind the existence of circumstantial
evidence. The firms often tend to justify the parallel behavior in
prices, production, dispatch or supplies etc.by explaining the
100
fundamentals of the market forces such as demand, increasing
cost of production and other economic factors.
300. However, it also remains a fact that parties to an anti-
competitive agreement will not come out in open and reveal their
identity to be punished by the competition agencies. This is also
the reason that the legislature in its wisdom has made the
definition of ‘agreement’ inclusive and wide enough and not
restricted it only to documented and written agreement among
the parties. Thus, the Commission is not impeded from using
circumstantial evidences for making inquiries into act, conduct
and behaviour of market participants.
301. The Commission in light of the provisions of section 2(b) of
the Act as discussed aboveholds that in absence of any
documentary evidence of existence of an agreement, it is
appropriate and logical to inquire into cases of anti-competitive
agreements on the basis of existence of evidences which establish
that particular set of acts and conduct of the market participants
cannot be explained but for some sort of anti-competitive
agreement and action in concert among them.
302. The Commission observes that parallel behavior in prices,
dispatch, supply accompanied with some other factors indicating
coordinated behaviour among the firms may become a basis for
finding contravention or otherwise of the provisions relating to
anti-competitive agreement of the Act.
303. The competition agencies in other jurisdictions have also
taken cognizance of circumstantial evidences while inquiring and
establishing contravention in cases involving anti-competitive
agreements. While noting that the legal system/framework,
market structure, firm/consumer behavior etc. differs from
jurisdiction to jurisdiction, the Commission finds that the basic
101
competition principles are by and large applicable across
jurisdictions. Accordingly, looking at the position in other
jurisdictions, it is found that circumstantial evidences have been
used in the News Paper Cartel case (1999) of Brazil. Similarly, in
case of High Fructose Corn Syrup Antitrust Litigation of US,Atlantic
Sugar case of Canada Atl.,Sugar Refineries Co. v. A.G.Can.,
[1980], 2 S.C.R.644, circumstantial evidences were relied upon.
In Latvia- Hen’s eggs case also infringement was found based
upon circumstantial evidence.
304. It is noteworthy that OECD in its paper ‘Prosecuting Cartels
without Direct Evidence of Agreement’ (February 2006) has
observed as under:
“ Circumstantial evidence is of no less value than direct
evidence for it is the general rule that the law makes no
distinction between direct and circumstantial evidence …..….In
order to prove the conspiracy, it is not necessary for the
government to present proof of verbal or written agreement.”
305. It is no doubt true that as held by the Commission in
NeerajMalhotra case (supra), an agreement must be established
unequivocally. That however is not to suggest that an agreement
can be established only through direct evidence. As discussed
above, circumstantial evidence is of no less value than direct
evidence as the law makes no distinction between the two.
306. The Commission is not oblivious of the fact that the anti-
competitive conspiracies are often hatched in secrecy. The firms
engaged in anti-competitive activities are not likely to leave any
trace evidencing the same. Therefore, in absence of any direct
evidence of agreement among the conspirators, circumstantial
evidence is required to be looked into.
102
307. If direct evidences are not present, but circumstantial
evidences do indicate harm to the competition at a market place,
the Commission will certainly take cognizance of the same.
308. The Commission also observes that among set of
circumstantial evidences, evidences of communication among the
participants to an anti-competitive agreement may give an
important clue for establishing any contravention.
Communication evidences might prove that contravening parties
met and communicated with each other to determine their future
or present behaviour.
309. As noted earlier, for the purposes of the present
investigation, the DG, considering the commercial utility of truck
and bus tyre segment in transportation and public importance at
large, took into consideration the truck and bus tyres both cross
(or bias) and radial. However, with regard to the specific and
detailed study on cost of production, ex-factory price, price
parallelism etc., thefollowing LUG truck tyres were taken into
consideration for investigation:
Company Tyre (LUG)
Apollo 10.00-20 16 XT-7
Birla 10.00-20 16 PR Lug BT 112
MRF 10.00-20 SL 50 Plus N 16 Lug
Ceat 1000-20/16 HCL Super Lug
J . K. Tyre 1000.20 6 J TK Lug
Price Cost Trend Analysis
310. The price data for the period of 2005-2010 of the five
domestic tyre manufacturing companiesviz. MRF, J.K. Tyre,
Birla, Ceat& Apollo was analyzed.
311. It was noted by the DG that the major cost components
which affect the prices of tyres are the cost of natural rubber and
the excise duty. It was noted that the excise duty over the
investigation period has gone down from 16% to 10%.
103
312. It may be useful to note the excise duty changes as reflected
in the table below:
Excise Duty Movement
Year Exci se Duty
2004 16%
2005 16%
2006 16%
2007 16%
2008 14% (reduced to 10% from Dec. 2008)
2009 8%
2010 10%
313. With respect to another component viz. natural rubber, it
was noted that the tyre Industry is highly dependent on it which
accounts for 43% of the tyre production cost. Natural Rubber is
procured by domestic tyre manufacturers on daily basis and the
price of natural rubber fluctuates on daily basis. The weighted
average price of the natural rubber during the reference period is
shown below:
Weighted Average – Natural Rubber
Year Weight per/kg
2005 60/- per kg
2006 87/- per kg
2007 90/- per kg
2008 107/- per kg
2009 97/- per kg
2010 169/- per kg
314. On a careful examination of the above data, it appears that
during the investigation period, excise duty has shown a
downward trend and the natural rubber has increased in 2008
but has fallen in 2009 and then again increased in 2010. It was,
however, noted by the DG, as shown below, that during the
104
investigation period the net dealer prices of all the domestic tyre
players have continuously increased except in 2009 wherein a
limited decline in prices was observed.
315. Accordingly, the DG has come to a conclusion that these
tyre companies have not passed on the benefit of reduction in
excise duty to the consumers. To buttress the conclusion,
reliance was also placed on the Tariff Commission findings on
Tyre Industry.
316. A grievance is made of the fact that the DG has made
general observations that tyre manufacturers have not passed on
the benefits of the decreased excise duty to the customers. It is
alleged that in complete contrast to the assertions/findings by
the DG, the parties have been passing on the benefits of excise
duty reductions in the best interests of its customers.
317. To examine the price movement for the specific Lug Tyre
segment of the five domestic tyre manufacturers under
investigation, the weighted average of the net dealer price, as
shown below, may be analyzed.
Net dealer price (weighted average) for the 5 specific LUG segment
318. The Commission on the price – cost analysis noted that major
cost components are not only Natural rubber and Excise duty, but
2005 2006 % change 2007 % change 2008 %
change
2009 %
change
2010 % change
Apollo 8717 9793 12.34 10364 5.83 10701 3.25 10309 -3.66 10640 3.21
Birla 8057 8968 11.30 9506 5.99 9789 2.97 9280 -5.19 10091 8.73
MRF 8461 8992 6.27 9465 5.26 9973 5.36 9792 -1.81 10475 6.97
CEAT 7880 8720 10.65 9180 5.27 9718 5.86 9161 -5.73 10660 16.36
J.K.
Tyre
7800 8904 14.15 9156 3.13 9612 4.98 9122 -5.10 10248 12.34
105
also NTC Fabric and Carbon black. In the absence of detailed
analysis of changes in total cost and resulting changes in prices, the
Commission does not agree with findings of DG that the benefit of
decline in excise duty and price of natural rubber has not been
passed on to the consumers. In fact, it is observed that the fall in
prices of Natural Rubber was marginal in 2009 while the rise was
substantial in 2010 and no proportionality in price changes can be
linked to the same in 2009 or 2010.
Price Parallelism
319. On perusal of the above data, it was deduced by the DGthat
the net dealer price (weighted average) of lug tyre in respect of all
the companies was more or less the same with marginal
difference in their price except Apollo Tyre. Further, it was
noticed that the movement of net dealer price (weighted average)
in terms of actual quantum as also percentage change was
similar. The percentage change of net dealer price whether
upward or downward was found to show close correlation
amongst the five tyres manufacturing companies. Based on the
above analysis, it was observed by the DG that price parallelism
existed amongst the five tyre manufacturing companies which
area good measure/indicator to show that some kind of
information sharing in price had taken place amongst them.
320. The Commission observes that differences in range of prices
of different manufacturershas been more than Rs.1000 for the
period 2005-2009 and the range has come down to Rs.600 in
2010.Considering that the product is homogeneous, the 6-
12%range of difference in prices imply that the prices are
dissimilar and there is no parallelism at least in absolute prices.
As far as parallelism of price movement in percentage terms is
concerned there are wide variations amongst various
manufacturers.As far as directional changes are concerned,
parallelism is observable.
106
321. The parties have sought to justify the price parallelism in
the tyre industry by pointing out the peculiar features of the tyre
industry. It has been highlighted that price parallelism in the
tyre industry arises on account of the fact that the products sold
are homogenous which makes it difficult for businesses to charge
different prices to customers. It is argued that products in the
tyre industry share similar sources of inputs, which means that
competitors are subject to similar cost fluctuations in setting
their product prices. Lastly, it has been contended that prices of
products in the tyre industry are highly visible, which allows
businesses to collect real time market intelligence and monitor
each other’s prices closely and match competitors’ price
movements.
322. The Commission carefully perused the submissions made
by the parties on this count. It may be observed that price
parallelism perse may not fall foul of the provisions of the Act.
However, if the same is the result of a concerted and coordinated
action under the aegis of trade association, then the same stands
covered within the purview of the Act. In this particular case, the
parallel pricing pattern is not very sound. However, now we shall
analyze if there are any plus factors to suggest that this limited
price parallelism is on account of concerted action.
323. The DG, has analyzed theseplus factors. TheDG made
elaborate analysis of data relating to production; capacity
utilization; cost analysis; cost of sales/sales realization/margin;
cost of production and natural price movement; net dealer price
& margin and market share, the Commission also considered
these factors.
Capacity Utilization Analysis
107
324. The DG also examined the capacity utilization of all the 5
major domestic tyre manufacturing companies and the details
thereof are noted below:
Capacity Utilization Movement
Company 2005-06 2006-07 2007-08 2008-09 2009-10
Utilization
%
Utilization
%
Utilization
%
Utilization
%
Utilization
%
Apollo 89% 89% 92% 87% 80%
Birla 90.74 89.83 97.67 81.59 104.57
MRF 74.7 79.27 82.13 80.85 89.04
Ceat 90% 91% 83% 75% 81%
J.K.Tyre 101% 92.6% 86.5% 85.1% 86.7%
From the above, it was deduced by the DG that the overall
capacity utilization of the tyre manufacturers have been showing
a downward trend and the utilized capacity has dropped down in
the case of major three companies viz. Apollo, Ceat and J.K.Tyre
except MRF & Birla from 2005 to 2010. In the case of Birla, the
variations in capacity utilization were noted as very high as it
dropped from around 97% to 81% in the year 2008-09 and then
drastically increased from 81% to 104% in the year 2009-10.In
J.K. Tyre, a drastic decline in the capacity utilization was noted
during the entire investigation period which reflects under-
utilization of capacity.
325. On behalf of Apollo and some other parties, the concept of
capacity available for production was introduced in the
arguments by the opposite parties. It was argued that capacity
utilization was relatable to the available capacity and this was the
correct measure and not the installed capacity. Impugning the
analysis of the DG relating to capacity utilization, it was pointed
108
out that the DG erred in its report by focusing on capacity
utilization and concluding the existence of a cartel based on
perceived low capacity utilization levels, without analyzing the
key variables that drive capacity utilization viz.capacity, demand
and production etc. Moreover, technical constraints relating to
operation of new capacity need to be factored into the calculation
of capacity utilization as alsowidely understood in the tyre
industry 100% of the installed capacity is rarely available for
production from the first year a plant is commissioned and even
thereafter. This is stated to be due to various issues such as lead
time (ramp-up) that is required by a plant to stabilize production,
maintenance (both scheduled and un-scheduled), labour unrests
etc.It has also been alleged that the DG has further ignored the
fact that there was global economic crisis in or around 2008-
2009 and the tyre industry was also adversely affected by the
same because of the reduced demand by original equipment
manufacturers i.e. automotive manufacturers and reduced
demand in the replacement segment. It is alleged that the DG has
drawn generalized reference to capacity utilization without
considering specific aspects of each company and why there are
movements in relation to the capacity utilization data. It is the
case of Apollo that its capacity utilization has been consistently
very high except for a short period in 2008-2009. It is alleged that
the DG has completely failed to take into consideration that the
lock-outs took place during the investigating period, thereby
grossly mischaracterizing Apollo’s capacity utilization.
326. The Commission has given thoughtful consideration to the
data on capacity utilization and plea raised by the parties. On a
closer examination of the data, the following observations are
made:
i) The trends are mixed: It is noticed that the capacity
utilization for some companies increase and others decrease on a
109
YoY basis. The fall in 2008-09 is in line with recession. Lack of
clear trend in figures suggest that variations in CU are company
specific and not necessarily due to any concerted action.
ii) The capacities have increased: The decrease in CU needs to
be read along with the increase in capacities. The CESTAT
ordercited by Michelin
4
observes:
…..The capacity has increased from 26270 MTs to 37636
MTs and the production has increased from 18622 MTs to
27364 MTs and therefore the capacity utilization has also
increased from 70.89% to 72.71%. However, the DA has
noted that despite growth in demand growth in production
has declined.
This highlights the increase in production has been muted
because of increase in capacity and not due to reduction of
output leading to supply suppression.
iii) The ICRA Report estimated on the basis of Company
announcements that the installed capacity is likely to go up by
47% from 2009-10 to 2012-13. The investments committed by
the companies negate the cartel theory as it does not seem
practical for companies to maintain a high ROCE when capital is
continuously increased.
327. It is also relevant to point out the observations made by the
Tribunal (CESTAT) in the appeal filed against the findings of DA
by Bridgestone, Michelin, Tata Motors Ltd. and two Chinese
companies. The Tribunal noted that during the period 2004-
2008, the sales by domestic industry increased 2.5 times. It was
also noted that during the same period imports increased from
1361 MTs to 28386 MTS. Thus, the demand was very high
during the said period. The turnover, profits and return of
capital of the domestic industry increased but the capacity
utilization was 72%. This is another testimony to the fact that
4
As submitted and annexed in DGs Report.
110
tyre manufacturers willful suppression of capacity does not make
any economic sense as the only beneficiary of the same will be
the importers unless it can be established that the tyre
manufacturers increased prices to such an extent that they
gained despite losing huge volumes to imports.
328. From the above analysis, the Commission concludes that
the tyre companies were not in a position to profit from limiting
the supply by willfulunderutilization of capacity.
Cost of Sales, Sales Realization and Margin
329. The DG made a detailed analysis of cost of sales, sales
realization and margin. It was noted that sales include cost of
production, selling and distribution cost, administrative
overheads, advertisement etc. Sales realization is the amount
received on sale of each unit. Margin indicates the profit or loss
realized on sale of the product. The analysis was done to get an
idea about the profitability or otherwise of sale of each product.
The following information regarding cost of sales, sales realization
and margin with respect to truck tyres was culled out from the
cost audit report:
Tyre Company UNIT YEAR
Cost of Sal es
( /Unit)
Sales Realization
( /Unit)
Difference
between Cost
of Sales and
Sales
Realization
(Margin in
/UNIT)
APOLLO TYRES Truck 2009-10 6852 7979 1127
APOLLO TYRES Truck 2008-09 7079 7826 747
APOLLO TYRES Truck 2007-08 6119 7085 966
APOLLO TYRES Truck 2006-07 6145 6790 645
APOLLO TYRES Truck 2005-06 5488.48 6118.7 630.22
J K TYRE Truck 2009-10 7208.2 7827.12 617.92
111
J K TYRE Truck 2007-09 (18
MONTHS)
7486.04 7562.61 76.57
J K TYRE Truck 2006-07 6498.41 6897.82 399.41
J K TYRE Truck 2005-06 6281.84 6319.28 37.44
J K TYRE Truck 2004-05 5838.03 5880.08 42.04
CEAT LTD Truck 2009-10 7509 7620 111
CEAT LTD Truck 2008-09 8179 7908 -270
CEAT LTD Truck 2007-08 6571 6922 351
CEAT LTD Truck 2006-07 6522 6645 122
CEAT LTD Truck 2005-06 5801 5903 102
MRF LIMITED Truck 2009-10 5379.47 5751.05 371.58
MRF LIMITED Truck 2008-09 4035.87 4346.17 310.3
MRF LIMITED Truck 2007-08 3678 3836.41 158.41
MRF LIMITED Truck 2006-07 3091.77 3288.16 196.39
BIRLA TYRES* Truck 2009-10 6891 6905 14
BIRLA TYRES* Truck 2008-09 7872 8164 292
BIRLA TYRES Truck 2007-08 6531 7125 594
BIRLA TYRES Truck 2006-07 6479 6928 449
BIRLA TYRES Truck 2005-06 5668 6039 371
* Refers to Balasore
unit only
330. Based on the analysis of the above information, it was
concluded by the DG that margins for Apollo tyres have been
showing a very healthy trend and it has reached the highest in
year 2009-10. In the case of JK Tyres, the margin has been
improving and has gone up drastically. The margin, which was
76 during 2009-10, has gone up to 617 in year 2009-10 which
112
is more than 8 times compared to previous year. In the case of
MRF, the margins have shown significant improvement in the
year 2008-09 and have further improved in 2009-10.In the case
of CEAT, it may be noted that in the 2009-10 the company was
able to improve its margins significantly from a negative margin
of Rs. 270 in the year 2008-09 to a positive margin of Rs.111 in
the year 2009-10.Birla Tyres has shown lower margin for 2009-
10 compared to previous year.
331. Considering the profit margin on the sale of each tyre, it
would be seen that for Apollo Tyres, the margin per tyre
increased from Rs.747/- to rs.1127/- in years under
consideration. Similar is the story of increase in margin of JK
Tyre where the margin increased from Rs.76.56 to Rs.607.92 per
tyre. However, in case of CEAT, it was selling its tyre at a loss in
the year 2008-09 and in the year 2009-10, it had a margin of
Rs.111/- per tyre, MRF margin in the year 2008-09 was Rs.310/-
in 2009-10, it was Rs.371/-, Birla Tyre had a margin of Rs.292/-
in 2008-09 and only Rs.14 in the year 2009-10. There is no
uniformity in the rise of margins of different companies. Birla
rather reduced its margin per tyre considerably and had been
selling at the lowest margin of Rs.14/- per tyre. The cost of Birla
Tyre was also lowest in the year 2009-10 being Rs.10091/-.
332. Similarly, the margin of CEAT was only Rs.111/- per tyre
which cannot be considered as excessive or exorbitant. The
margin of two companies was definitely higher than that of the
other companies but if we look at the different margins, it would
not give an impression of a concerted agreement among the
enterprises of forming a cartel. It is also noteworthy that Birla
had considerably reduced its margin from Rs.292/- to Rs.14/-
only. While CEAT seems to have got in red in the year 2009 and
started showing profit in the year 2010, JK Tyre was also working
at lower margin in the years 2007-09 of Rs.76.57 per tyre.
Looking at data regarding margins does not seem to suggest
meeting of minds on the part of different enterprises for fixing
prices.
113
333. In view of the above analysis, it may be noticed that the
cost of sales and sales realization have shown increasing trend
year after year. Different manufacturers are differently placed as
far as Net Margins are concerned. The bigger the range between
the margins of manufacturers, lower are the chances
ofsustaining a cartel.The companies with lower margins have no
incentive to collude and will but deviate. It is recognizedprices are
a function of number of factors including but not limited to cost
conditions, thus the Commission finds no merit in evaluating
whether the changes in Sales Realization are proportionate to
cost of sales or not. It cannot be concluded on the basis of the
above data relating to cost of sales, sales realization and margins
that there is any indication of concerted action.
Analysis of Net Dealer Price and Margin
NAME OF THE
COMPANY
YEAR NET
DEALER
PRICE ( )
%
CHANGE
MARGIN (Difference
between Cost of Sales and
Sales Realization)
/UNIT
APOLLO TYRES 2010 10640 3.2 1127
APOLLO TYRES 2009 10309 -3.6 747
APOLLO TYRES 2008 10701 3.25 966
APOLLO TYRES 2007 10364 5.8 645
APOLLO TYRES 2006 9793 630.22
JK TYRE & INDUSTRIES
LTD.
2010 10248 12.3 617.92
JK TYRE & INDUSTRIES
LTD
2009 9122 5 76.57
JK TYRE & INDUSTRIES
LTD
2008 9612 4.9 399.41
114
334. The DG also conducted the analysis of the Net Dealer Price
(Weighted average) of Lug truck tyres vis-à-vis the margin of each
of the five domestic companies under investigation and the same
may be noted below:
335. It was noted by the DG that the analysis of the Net Dealer
Price (Weighted average) of Lug truck tyres vis-à-vis the margin of
each of the five domestic companies under investigation showed a
significant increase in margins from 2006-2010. Thus, it was
concluded that all the companies have been operating on high
margins barring some exceptions as highlighted in the table
JK TYRE & INDUSTRIES
LTD
2007 9156 2.8 37.44
JK TYRE & INDUSTRIES
LTD
2006 8904 42.04
CEAT LTD 2010 10660 16 111
CEAT LTD 2009 9161 -5.7 -270
CEAT LTD 2008 9718 5.8 351
CEAT LTD 2007 9180 .5 122
CEAT LTD 2006 8720 102
MRF LIMITED 2010 10475 6.9 371.58
MRF LIMITED 2009 9792 -1.8 310.3
MRF LIMITED 2008 9973 5.3 158.41
MRF LIMITED 2007 9465 5.2 196.39
MRF LIMITED 2006 8992
BIRLA TYRES* 2010 10091 8.7 14
BIRLA TYRES* 2009 9280 5.1 292
BIRLA TYRES 2008 9789 2.9 594
BIRLA TYRES 2007 9506 5.9 449
BIRLA TYRES 2006 8968 371
* Refers to Balasore unit
only
115
above. It was also noted that the margins have increased from
42.04 to 617.92 in the case of J.K. Tyre which is an increase of
almost 15 times in a short span of 4 years. Similarly, in the case
of Apollo Tyres the margins have almost doubled in the last four
years.
336. Though the Commission believes that deciding on margins
being “excessive” is an inconclusive exercise, but in this case the
data anyways does not support the assertion of “excessive”
margins given that the margins in some cases are less than 1%
and the highest margin is around 10%, which cannot be called as
‘high’. Also, as pointed out earlier also, these substantial
differences in margins negate the possibility of a cartel as the
investigation in such cases need to show the benefit to cartel
members operating at such low margins.In view of the above
analysis, the Commission disagrees with the findings of the DG
on this count that these domestic tyre manufacturers have been
operating on large margins which did not appear to be passed on
to the consumers.
Higher Operating Profits and Return on Capital Employed (RoCE)
337. The Commission alsoconsidered the financials of the
opposite parties on all parameters duringthe period 2008-09 to
2009-10. The best indicators of profitability are the EBIDTA
Margin as % of Sales and Cash Flows from Operating Activities.
PBDITA net of Prior period & Extraordinary Items &Other Income &Financial
Income as % of sales
Name of the company
2005-
06
2006-
07
2007-
08
2008-
09
2009-
10
2010-
11
CEAT 4.40 6.30 7.90 1.50 10.50 3.60
MRF 6.10 9.00 7.70 11.50 10.30 7.60
Apollo 7.50 8.30 10.90 7.70 14.50 8.80
J K Tyres 5.00 5.30 7.90 5.30 10.20 4.90
Source: CMIE
338. As may be noted from the above table, EBDITA Margins
have ranged from a low of 1.50% of Sales to a high of 11.50% of
116
Sales. Though, there is a definite increase in operating
profitability in 2009-10 for all the companies (MRF follows the
October – September year for accounting and hence the trend is
blurred) which suggests more than proportionate increase in
prices as compared to cost of operations.
339. Similar observations can be made from Cash flow from
Operating Activities analysis.It is noticed that all the companies
(except MRF) almost doubled their cash inflows in 2009-10 over
2008-09. For MRF, the trend is reflected in 2008-09 because of
difference in accounting year. These cash flows again came down
to their normal levels in 2010-11. The Commission noted that
there is a definite blip in profitability and cash inflows which can
be read with other factors to reach some conclusions. But it is
equally important to note that the blip has been very short lived,
almost consistent with the period of ADD.
Net Cash Flows from Operating Activities (Rs. In Millions)
Name of the company
2005-
06
2006-
07
2007-
08
2008-
09
2009-
10
2010-
11
CEAT 554.00 1067.60 1392.00 1312.20 2326.80 1363.10
MRF 2748.60 3061.40 3290.90 9372.70 1860.50 6328.70
Apollo 794.00 3574.70 4277.70 3245.80 7026.60 1523.50
JK Tyres 859.00 466.40 1950.10 2663.50 5442.20 -212.60
Source: CMIE
Market Share
340. A comparative study of the market share was undertaken
for domestic tyre manufacturers. It is clear from the data that
Apollo, CEAT, Goodyear and JK have lost their market share
which has been gained by Birla. Birla’s market share is shown as
8.9% in 2005-06 and it has grown in 4 years to reach 19.74% in
2009-10. This is inconsistent with general cartel behavior where
market shares remain consistent through the years. Also, it is
against the rational business behavior to lose market share to a
rival in a cartel set up. Such trend in market share movement is
possible only in case of competitive environment.
117
Conduct of ATMA
341. As noted earlier, the tyre manufacturing firms have an
association under the name Automotive Tyre Manufacturers’
Association (ATMA) as the representative body of automotive tyre
industry in India. Eight large tyre companies including MRF, J K
Tyre, Birla, CEAT and Apollo representing over 90% of production
of tyres in the country are its members. The Association regularly
publishes data on production and export of various categories of
tyres. Besides, the Association prepares Status notes on various
subjects which are of relevance to tyre industry, such as, Tyre
Retreading Industry, Regional Trade Agreements & Rules of
Origin, Anti-Dumping, etc. Thus, it may be noticed that the firms
have an active trade association engaged in the above activities.
342. It was noted by the DG that ATMA which is an association
of domestic tyre manufactures acted as a close knit family. On
examination of the various minutes of the meetings held from
2005-2010, it was noted by the DG that the domestic tyre
manufactures were facing stiff competition from the imports
under the different tyre segments. On examination of the ATMA
circulars and minutes of the meeting, it was noted that ATMA
members have collectively adopted the various courses of action
which included: i) anti-dumpingpetitions;ii) low cost tyres; iii)
blacklisting of importers;iv) export realization andv) un-
remunerative prices from the supplies made to OEMs.
Anti-Dumping Action
343. DGnoted that tyre manufacturers under ATMA took various
actions by agreeing to support and cooperate in filing various
anti-dumping applications before the competent authority to
neutralize the competition faced by them from exporters based at
118
China and other countries. In this connection, the DG noted from
the minutes of ATMA that the ATMA Committee took serious note
of the rising trend in import of passenger car tyres into India,
particularly large scale import of cheaper tyres and dumping of
radial passenger car tyres, and advised ATMA
Secretariat to proceed with the filing of an anti-dumpingpetition
against such imports. It was brought to the attention of the
Committee that full cooperation of all ATMA member companies,
which manufacture passenger car tyres, was imperative for the
success of the case. All the members present assured support
and cooperation in filing anti-dumping application as petitioners
and by providing necessary inputs and cooperation in the said
proceedings.
344. Similarly, to thwart competition from import of Truck &Bus
Bias tyres, thedomestic tyre manufactures filed Anti-Dumping
petition. It was noted by the DG from the reply of ATMA that it
retained the services of a common advocate to file an Anti-
Dumping petition against import of Bias Truck &Bus tyres from
China. Members were informed that one round of discussions
has taken place between Cost Managers of select tyre companies
and the advocate. The advocate had desired Marketing, Cost and
Financial data, as per format circulated through ATMA, to be
completed by three member companies viz. Apollo, Ceat and JK
to be forwarded directly to the advocate so that the application
could be processed.
345. In this connection, it is significant to note that the advocate
inter alia advised a meeting of Cost Managers of ATMA member
companies with him to ensure uniformity of data and format in
which it is to be presented. Subsequently, the domestic tyre
manufacturers filed an anti-dumping petition under the Bias
segment.
346. With the increase in radialization of tyres under the car and
trucks/ bus segment, domestic tyre manufactures again felt the
119
heat on account of imports of radial tyres from the global market.
Accordingly, in order to evade competition and protect
themselves, the domestic tyre manufactures again filed anti-
dumping petition under the radial category also so as to increase
the import cost to consumers as well as OEMs.
347. ATMA sought to clarify the above conduct by submitting
that the Anti-Dumping petition involved furnishing extensive
information/data in a prescribed format as per the anti-dumping
rules and provisions. It was also stated that even the anti-
dumping application performa requiredthe petitioner to compile
the information to the extent possible. It was also clarified that
cost data being highly confidential in nature, were directly
submitted by the concerned tyre companies to the advocate for
onward submission to directorate of anti-dumping after
aggregation, analysis etc.None of the tyre companies was privy to
the confidential costing data submitted by the other tyre
companies in such proceedings, submitted ATMA.The
Commission considered the findings of DG and submissions of
ATMA and concluded that the lobbying for welfare of tyre
industry is the prime objective of ATMA and the same cannot be
viewed as anti-competitive. The discussion and joint application
for levy of anti-dumping duty also seem necessitated, given the
procedure specified. Moreover since the costing data was
confidential to each company the possibility of sharing such
sensitive information is most unlikely.
Low Cost tyre strategy
348. As members of ATMAdomestic tyre manufacturers adopted
the collective strategy of launching the lower priced tyres to
effectively compete with the Chinese truck tyre imports.
349. In this connection, ATMA stated that in view of the rising
volume of dumped/low priced truck and bus tyres from
China,the Indian tyre manufacturers had considered the option
120
of introducing lower weight and hence low priced truck and bus
tyres as a pro- competitive measure to meet Chinese competition
on account of the ‘tyres with lower weight’ being dumped into the
country.
350. The Commission noted that the strategy of introducing low
weight low cost tyres to meet the competition and agrees with
submissions of OP’s to that effect. The fact that the strategy was
collective may again be used to infer meeting of minds but there
is nothing anti-competitive in it.
Collectively black-listing the Importers
351. Based on the analysis conducted by the DG, it may be
observed that the tyre companies under the aegis of ATMA also
decided to take measures resulting in collective black-listing of
the importers. It may be noted that the Committee members of
ATMA took note of the discussions that had earlier taken place in
a meeting of Marketing Group regarding under-valued/under
invoiced import of tyres, particularly in the Truck Bias, Truck
Radial and Passenger Car Radial segments. The Committee
advised that, as in the past, ATMA Secretariat should take up the
issue with Customs Authority for Redressal. It was also stated
that the angle of revenue loss to the Government should be
adequately projected.
352. It may further be noted that the Committee also advised the
Marketing Group to evolve appropriate strategy so that sale of
under-valued/under-invoiced tyres could be checked at the retail
level with the involvement of local State sales tax authorities. It
was decided at the meeting that all the tyre companies should
collectively co-ordinate for initiating the line of action and the
following four geographical areas and tyre companies which could
take lead in this direction were notified as follows:
121
a) Delhi (Apollo)
b) Mumbai (Ceat)
c) Vijaywada (tyre company name to be confirmed)
d) Indore (JK Tyre)
353. The four locations were short-listed since these were
understood to be focal points where sale of under-
invoiced/under-valued truck & bus tyres-bias and radial-was
rampant. Based on the effectiveness of action plan in these
areas, it was decided that the same could be replicated at an all
India level. Moreover, it was also decided that similar strategy
could be adopted in the case of grey market imports of MNC
brands in the passenger car tyre segment. Convener, Marketing
Group was advised to have a meeting of Marketing
representatives, immediately following the Managing Committee
meeting, to evolve an appropriate strategy to check the
malpractices, including black listing, by tyre companies, of
importers indulging in such imports, particularly if they were
having dealings with Indian tyre companies also.
354. ATMA sought to clarify that the whole intent was to assist
the concerned custom authority to track such undervalued/
under invoiced imports at major trucking centres and at ports.
The intent was to ensure that importers do not find ways and
means of circumventing the duty imposed and to check for
undervalued and under invoiced imports.
355. The Commission noted the findings of DG and submissions
of OPs. The Association’s concern for undervalued/under
invoiced imports is genuine and their collective decision to assist
the authorities is in the direction of ensuring fair play in markets.
Export Realizations
122
356. ATMA member companies have undertaken discussion on
the issue of export realization. The members of ATMA collectively
discussed the issue about the feasibility of increasing the average
realization on exports from minimum Freight on Board (FoB)
value of US $2.25/kg to a higher level. It may be noted that
ATMA Export Forum has discussed the issue of export
realization. However, considering the current market conditions
and intense competition from China particularly in the
Radial/Bias T&B tyre category, any major increase in average
export realization in some categories, especially Bias T&B tyres,
was not found feasible.
Unremunerative prices from the supplies made to OEMs
357. The issue of unremunerative prices realized from the
supplies made to OEMs is noted as also another area of
discussion among the member companies. The domestic tyre
companies have discussed the issue of OEM prices vis-à-vis.
input cost. Consistent rise in input costs in recent months was a
major concerns for tyre companies.
358. Thus it may be noted that the discussions centered on un-
remunerative prices realized from OEMs due to absence of
corresponding increase in price of end product. There was a
general consensus that truck and bus tyres supplied to vehicle
manufacturers were at unsustainable prices, particularly in view
of hike in inputs costs.
359. ATMA sought to justify the aforesaid discussion by arguing
that the remarks in the meetings under reference were general
observations made in the context of the increase in input costs
and price for OEMs supplies. ATMAalsopointed out that the DG
in its report has failed to appreciate the critical fact that none of
the actionsviz. Anti-Dumping Petition; Low Cost Tyres Strategy;
Blacklisting Importers; Export Realization; Supply of Tyres to
123
OEMsundertaken by ATMA was aimed at determining the
individual conduct of any of its members. It has been further
submitted that the abovementioned steps/ activities are in line
with the roles and responsibilities of an association such as
ATMA i.e. representing an industry group. It is argued that if the
logic adopted by the DG in its report is accepted by the
Commission, it would lead to an untenable situation where trade
associations representing the interests of an industry group, will
be barred from adopting any measure necessary to protect the
interests of the concerned industry. Lastly, it is asserted that
forming a trade association per se is not anti-competitive in any
manner.
The Commission carefully examined the submissions made by
ATMA. The Commission agrees with ATMA that the trade
associations may adopt the measures, which are necessary to
protect the interests of the members. However, the decisions
should not be in contravention of the Competition Act. The
Commission noted that the activities of ATMA may thus be
described as lobbying as far as anti-dumping duty issue is
concerned. The discussions and conduct on other allegations is
general and is not in contravention of the Act.This conclusion is
based after a careful perusal of the minutes of the ATMA
meetings. A few of the minutes are given below.
360. The minutes of MC meeting of ATMA held in April, 2005
recorded the following items:
Item 4.2: There was a general consensus that truck and bus
tyres supplied to OE’s (vehicle manufacturers) were at
unsustainable prices, particularly in view of hike in input costs.
Marketing group was advised to address this issue in its next
meeting.
Item 5: Chairman ATMA suggested that in view of the fact that
since the volume of such imports had stabilized, tyre companies
may like to review their earlier strategy of bringing out lower
124
priced tyres to effectively compete with Chinese truck tyre
imports.
361. The draft minutes of MC meeting of ATMA held in July,
2005 recorded the following items:
Item 5: Members were informed that one round of discussions
has taken place between cost managers of select tyre companies
and the advocate. The advocate had desired marketing, cost and
financial data, as per the format circulated through ATMA to be
completed by three member companies (Apollo, CEAT and JK) to
be forwarded..
362. The draft minutes of MC meeting of ATMA held in May,
2006 recorded as follows:
Item 3: …MC decided that ATMA members would import 52,000
MT of natural rubber which is 12% of consumption of tyre
industry between Jan and Dec 06.
……It was felt that in view of the steep increase in the price of
natural rubber and further increase anticipated, tyre companies
should intensely look into the feasibility of increasing
consumption of synthetic rubbers in place of natural rubbers.
Item No. 4: Tyre Export: The need to increase export realization
was stressed by members of the MC. A view was expressed that
tyre companies should look for minimum FOB value of US
$2.25/KG in export.
363. Action Taken Statement in the MC meeting of ATMA held in
August, 2006 recorded the following issues:
Issue 1: monthly import level of NR by each tyre company be
collected by ATMA secretariat and circulated to MDS.
Action taken: Latest information on NR imports compiled and
circulated to MDs for information.
125
Issue 9: ATMA to constitute a core group to work out demand
projections of tyres for the next 5 years.
Action taken: core group constituted by ATMA. Two meetings of
the core group held….preliminary work has been initiated and
findings brought to the attention of marketing group.
364. Action Taken Statement in the MC meeting of ATMA held in
January, 2010 recorded the following issues:
Item 7: Tyre Demand Projection…….As per the decision of the
ATMA marketing group, ATMA has initiated a detailed study on
tyre demand projection, for major tyre categories for the next 5-6
years….
Item 9: ETRMA has suggested to ATMA to share on a reciprocal
basis tyre production data of their respective member companies
at the level of ETRMA and ATMA.
For consideration and decision by the committee.
365. In view of the above and taking into consideration the act
and conduct of the tyre companies/ ATMA, it is safe to conclude
that on a superficial basis the industry displays some
characteristics of a cartel there has been no substantative
evidence of the existence of a cartel. As a tradable the industry
has always been open to competitive threats from imports. The
Commission holds that the available evidence does not give
enough proof that tyre companies/ ATMAacting together have
limited and controlled the production and price of tyres in the
market in India.
126
Order
366. The Commission has found that there is not sufficient
evidence to hold a violation bythe tyrecompanies Apollo, MRF,
J.K. Tyre, Birla,Ceat and ATMA of the provisions of section 3(3)
(a) and 3(3)(b) read with section 3(1) of the Act.
367. The Secretary is directed to communicate this order as per
regulations to all the parties.
sd/-
(H.C Gupta)
(Member)
sd/-
(Geeta Gouri)
(Member)
sd/-
(M. L. Tayal)
(Member)
sd/-
(S.N.Dhingra)
(Member)
sd/-
Ashok Chawla
(Chairperson)
doc_594348915.pdf
The present information was originally filed by the All India
Tyre Dealers’ Federation (AITDF) against the tyre manufacturers
before the Ministry of Corporate Affairs and the same was
forwarded by the Ministry to the MRTP Commission (MRTPC).
Consequent upon the repeal of the MRTP Act, the matter stood
transferred to the Competition Commission of India (Commission)
under section 66 (6) of the Competition Act, 2002 (‘the Act’).
1
COMPETITION COMMISSION OF INDIA
MRTP Case: RTPE No. 20 of 2008
Date: 30.10.2012
In re:
All India Tyre Dealers’ Federation Informant
vs.
Tyre Manufacturers Opposite Parties
Present:
(i) Shri S P Singh convenor, AITDF
(ii) Shri K Venugopal, Sr. Advocate and Shri AdityaNarain Adv.
for M/s J K Tyres & Industries Limited
(iii) Shri Manas Chaudhuri, Adv. for M/s Ceat Ltd.
(iv) Shri A N Haskar, Sr. Adv. and Shri AdityaNarain, Adv. for
M/s MRF Ltd.
(v) Ms. Pallavi Shroff, Adv. and Shri Harman Singh Sandhu for
M/s Apollo Tyres Ltd.
(vi) Shri A.N.Haskar, Sr. Adv. and Shri AdityaNarain, Adv. for
M/s Goodyear India Ltd.
(vii)Shri Pinaki Addy, Adv. for M/s Kesoram Industries Ltd.
(viii)Shri Amitabh Kumar and Shri Gautam Shahi, Advocates
for M/s Michelin India Tyres Pvt. Ltd.
(ix) Shri RaviSekhar Nair and Ms.Nidhi Singh, Advocates for
ATMA
2
Order under section 27 of The Competition Act,2002
Factual Background
1. The present information was originally filed by the All India
Tyre Dealers’ Federation (AITDF) against the tyre manufacturers
before the Ministry of Corporate Affairs and the same was
forwarded by the Ministry to the MRTP Commission (MRTPC).
Consequent upon the repeal of the MRTP Act, the matter stood
transferred to the Competition Commission of India (Commission)
under section 66 (6) of the Competition Act, 2002 (‘the Act’).
2. In the said information dated 28.12.2007, AITDF alleged
that the tyre manufacturers were indulging in anti-competitive
activities. In the information, statements of Ministers of Finance
and Corporate Affairs were quoted to indicate that the Ministers
were also aware about the behaviour of the tyre manufacturers.
3. It was alleged that the domestic tyre industry was the best
example of indulgence in the anti-competitive activities and
resorting to trade mal-practices. The tyre trade has been reeling
under this exploitativebehaviour of thesehandfulofdomestic tyre
majors. The domestic tyre industry, operating at 95%-100%
capacity, on the back of almost 25% annual growthin commercial
vehicle population in last four-five years, has been working in
unison and usurping the excise duty reduction contrary to the
interest of tyre users.
4. The AITDF alleged that since independence, the behaviour
of domestic tyre majors has been anti-competitive, anti-consumer
and they have been indulging in various pricing and trade mal-
practices, which had direct bearing on the revenue of the state
exchequer. The tyre majors are having history of restrictive trade
practices and even 35 years back the MRTP Commission had
passed its first ‘cease and desist’ order against the cartelization
by domestic tyre industry in October 1974. Hence, domestic tyre
industry has the ‘distinction’ of being indulgent in restrictive
3
trade practices in the market and as a consequence creating
chasm among the dealers creating a ‘creamy layer’ within the
tyre trade and generally exploiting the tyre user by price rigging
and strangulation of production and supplies. AITDF also alleged
that the truck and bus operators are not the only victim of their
machination, but also the vehicle manufacturers like Tata Motors
have been exploited in recent past by the domestic tyre majors.
5. The AITDF submitted that they have been continuously
feeding the concerned Central Ministries about the anti-trade,
anti-consumer and restrictive trade practices of domestic tyre
majors. The AITDF also approached the Competition Commission
of India regarding the anti-competitive behaviour of domestic tyre
majors vide letter dated 09.06.2007.
6. Following the receipt of the information, the erstwhile MRTP
Commission ordered an investigation into the matter. From the
record, it appears that as the DG (I&R) could not complete the
investigationwhen the MRTP Act, 1969was repealed,the matter
was transferred to the Commission.
Prima Facie Opinion
7. The Commission considered the matter in its meeting andon
perusal of the material on record and after giving thoughtful
consideration to all the facts and circumstances of the case,
passed an order dated 22.06.2010 under section 26(1) of the Act
directing the Director General (‘DG’) to conduct an investigation
into the matter and submit a report. The order of the Commission
specifically mentioned the five major domestic tyre
manufacturing companiesviz. Apollo Tyres Limited, MRF Ltd.,
Ceat Tyre Ltd., Birla Tyre Ltd. and JK Tyre Ltd.
Investigation and Findings of DG Report
4
8. In pursuance of the direction of the Commission, the DG
conducted the investigation into the matter and submitted his
investigation report to the Commission.
9. During the course of the investigation, the DG issued
notices to the following tyre manufacturers to seek information
and to collect data:
(i) J K Tyre & Industries Ltd. (J K Tyre)
(ii) Apollo Tyres Ltd. (Apollo)
(iii) Birla Tyres (Unit of Kesoram Industries Ltd.)
(iv) Ceat Tyre Ltd. (CEAT)
(v) MRF Tyres Ltd. (MRF)
(vi) Dunlop India Limited (Dunlop)
(vii) Goodyear India Ltd. (Goodyear)
(viii) Bridgestone India Private Limited (Bridgestone)
(ix) Michelin India Tyres Pvt. Ltd. (Michelin)
10. Besides, the information was also collected from Original
Equipment Manufacturers (OEMs), AITDF and Automotive Tyre
Manufacturers’ Association (ATMA).
11. A brief summary of the replies/information submitted by
the tyre manufacturers to the DG is noted below:
J K Tyre & Industries Ltd. (‘J K Tyre’)
12. J K Tyre stated that it is engaged in the manufacturing and
selling of tyres produced at the factories located in different parts
of the country. It also stated that it imports tyres (Bias/Radial)
for the purpose of testing, product evaluation, benchmarking etc.
It further stated that it sells its products in different parts of the
country through dealers and it does not enter into any written
agreement with the dealers and goods are supplied to dealers
under invoice which contains the terms and conditions of the
sale. It was averred in the reply that natural rubber is procured
domestically or through imports on daily basis. It also stated
5
that the selling price is dependent on demand & supply, cost of
production, competitive position of the company etc. It was
submitted that the ex-factory price comprises of cost of
production and the selling expenses. It was further stated that
the OEMs are the bulk buyers and are in a position to dictate the
prices based on purchase orders. It was stated that theprices
dictated by the OEMs are arbitrary. It was also submitted that in
comparison to the replacement market prices, the tyres are sold
at a loss or marginal profit to OEMs.
13. It also provided the actual and the installed capacity details
and the same are noted below:
(Nos. in Lakhs)
Year Installed
Capacity
(Qty in Nos.)
Actual
Production
(Qty in Nos.)
Utilization % % Increase/
decrease from previous
year
2002-03 56.56 49.59 87.7% 13.3%
2003-04 60.55 53.96 89.1% 8.8%
2004-05 62.96 56.15 89.2% 4.1%
2005-06 62.96 63.61 101.0% 13.3%
2006-07 75.98 70.33 92.6% 10.6%
2007-08 87.00 75.26 86.5% 7.0%
2008-09 87.93 74.86 85.1% -0.5%
2009-10 91.44 79.31 86.7% 5.9%
Apollo Tyres Ltd. (Apollo)
14. It was stated in the reply that Apollo sells tyres/tubes on a
principal to principal basis to the dealers who, in turn, sell the
same to the customer/end user. It was also stated that no sole
selling agent/distributor/stockist is appointed for marketing the
products. It was further averred that Apollo does not enter into
any written agreement with the dealers and the business
conditions are governed by the terms and conditions set on the
reverse side of the invoice. It was also stated that the price
determination depends upon the various factors, viz., desired
market share, desired product positioning, strategic intent of the
products, cost inputs for the products, target return on
investment and financial fluctuations etc. Further, it was stated
in the reply that the cost of production includes raw material
cost, conversion cost, power, steam/air, direct wages, salaries,
6
repair& maintenance, R&D, plant depreciation and other factory
overheads etc. It was stated that Apollo procures natural rubber
from dealers on daily basis at the prevailing market rates
15. Itprovided details of the actual tyre production, installed
capacity and the utilized capacity. The same are noted below:
Capacity Utilization
(Nos.in Lakhs)
Parti culars Installed Capacity
(Qty in Nos.)
Actual Production
(Qty in Nos.)
Utilization % % increase/decrease
from previous year
(over actual
production)
2005-06 79.34 70.29 89% 18%
2006-07 88.22 78.41 89% 12%
2007-08 96.59 88.67 92% 13%
2008-09 98.96 85.92 87% -3%
2009-10 131.53 105.28 80% 23%
16. It also submitted details of the truck/bus tyre production
and the export for the period 2005-2010. The same is quoted
below for ready reference:
Production and Export
(Nos. in Lacs)
Year Production
(Qty)
Export
(Qty)
Truck Bus bias Truck bus radi al Truck Bus bias Truck bus radi al
2005-06 31.76 - 4.62 -
2006-07 33.20 0.06 4.35 -
2007-08 35.42 0.35 4.23 -
2008-09 32.17 0.68 3.61 -
2009-10 37.44 0.81 3.25 -
17. It further provided details of cost of production for the above
mentioned two segments of tyres. The same is shown below:
Year Cost of Production – Per Unit
10.00-2016 Amar (in ) 10.00-2016XT-
7(in )
2005-06 4674 5144
2006-07 5343 5998
2007-08 5184 5718
7
2008-09 6206 6612
2009-10 6047 6356
Birla Tyres (Unit of Kesoram Industries Ltd.)
18. It was stated in the reply that Birla Tyres produces truck
and bus tyres, LCV and passenger car tyres by using state of the
art machineries and the latest technology. It was stated that Birla
Tyres is continuously increasing the capacity outlay to increase
the installed capacity and its capacity utilization has improved
from 93.62% in 2004-05 to 104.57% in 2009-10. It was further
stated that the raw materials constitute 85% of the total cost of
production. It was stated that raw material prices are directly
influenced by prices of rubber and crude oil. Further, it was
stated that Birla Tyres procures natural rubber from rubber
dealers on daily basis as per the requirements. Prices of natural
rubber are stated to be volatile. It was also stated that Birla
Tyres is continuously decreasing the supplies to the export
market in terms of percentage of total production.
19. The year wise capacity utilization details, as provided, are
shown below:
(No. of Tyres in lakhs)
Year Installed
Capacity(Qty)
(Truck Tyres)
Actual
Production(Qty)
(Truck Tyres)
Utilization %
(Truck Tyres)
2004-05 10,66 9.98 93.62
2005-06 11.66 10.58 90.74
2006-07 13.08 11.75 89.83
2007-08 14.58 14.24 97.67
2008-09 13.80 11.26 81.59
2009-10 13.80 14.43 104.57
Increase% age 29.46 4.59
20. It wasfurthersubmitted that the raw material constituted
85% of cost of production. Raw material prices are directly hit by
prices of rubber and crude oil on which are dependent other
major raw materials such as Synthetic Rubber, Carbon Black
and Tyre Cord Fabric. It further submitted that it procures
8
natural rubber from rubber dealers on daily basis based on its
requirements. The prices of natural rubber are volatile and
fluctuate on daily basis. It submitted the major price increase of
essential raw material over last 6 years as shown below:
(Rs. /Kg)
% of total
RM
consumption
2004-
05
( /Kg)
2005-
06
( /Kg)
2006-
07
( /Kg)
2007-
08
( /Kg)
2008-
09
( /Kg)
2009-
10
( /Kg)
% increase
from 2004-
05
Natural
Rubber
42.05 65.82 69.73 95.41 97.24 117.82 110.90 68.49
Synthetic
Rubber
12.06 81.26 100.60 101.03 100.46 159.38 136.46 67.93
Carbon
Black
11.04 28.41 32.78 41.74 40.07 54.09 53.02 86.62
Fabric 20.01 170.14 196.54 178.08 171.24 215.84 218.26 28.29
Total 85.16 50.06
21. With regard to the production and export, Birla tyres
submitted that it is continuously decreasing the supplies to the
export market in terms of percentage of total production.
(No. of tyres)
CEAT Ltd. (CEAT)
22. It was stated in the reply that CEAT is engaged in the
manufacture of tyres, tubes and flaps. The actual production,
capacity utilization details for the period 2005-2010 were
provided and the same are noted below:
Capacity Utilization
Year Plant Installed
Capacity
Actual
Production
Utilization (%) %
Increase/decrease
from previous year
2005-06 Nasik 4,310,930 3,864,051 90%
2006-07 Nasik 4,310,930 3,925,091 91% 1%
2004-05 % of
prod
2005-06 % of
prod
2006-07 % of
prod
2007-08 % of
prod
2008-09 % of
prod
2009-10 % of
prod
Product
ion
1524363 1533451 1674147 1933172 2419916 4498207
Export 452223 29 471477 30 503461 30 498344 25 465656 19 692526 15
9
2007-08 Nasik 4,542,220 3,768,703 83% -8%
2008-09 Nasik 4,542,220 3,411,444 75% -8%
2009-10 Nasik 4,726,048 3,820,647 81% 6%
23. It was submitted that CEAT has established a network of
sales offices across India and it sells the goods on principal to
principal basis to the major customers, viz., government
accounts, fleet accounts, state transport undertakings, vehicle
manufacturers and to over 3000 dealers in different parts of the
country who, in turn, sell the same to the consumers. It also
stated that these dealers also sell the competitors’ products and
CEAT does not enter into any agreement for the sale of its
products with the dealers and the supplies are effected under an
invoice which contains the terms and conditions. CEAT
submitted that for manufacturing tyres/tubes it uses basic raw
materials, viz., natural rubber, synthetic rubber etc. The raw
material prices fluctuate on day to day basis with changes in
crude oil prices, foreign exchange rates, international raw
material prices etc. Pricing of the products was stated to depend
upon raw material prices, landed price of competitive products
(imported), demand & supply in the country and abroad. Natural
rubber is stated to be the most important raw material required
for manufacture of tyres.
24. With regard to the tyre production, quantity exported and
imported, the details, as provided, are shown below:
Year Total production Qty. exported of the total production
Bias Radial Bias Radial
2005-06 1,771,797 0 495,896 0
2006-07 1,820,828 0 385,068 0
2007-08 1,875,991 0 485,964 0
2008-09 1,737,233 0 340,170 0
2009-10 1,958,922 0 364,233 0
25. Thedetailsof the importsprovided by CEAT for the period
2005-2010 are shown below:
Import
Year Bias Radi al
10
Replacement
Market (Nos.)
Original
Equipment
Manufacturer
(Nos.)
Replacement
Market (Nos.)
Original
Equipment
Manufacturer
(Nos.)
2005-06 24,997 0 3,826 0
2006-07 33,876 0 6,891 0
2007-08 42,222 0 13,917 0
2008-09 19,217 0 30,667 0
2009-10 25,059 0 29,377 0
MRF Tyres Ltd. (MRF)
26. In its reply, MRF has stated that it manufactures and sells
all categories of tyres and tubes used in automobiles. Details of
capacity utilization, asprovided, areshown below:
27. It was stated in the reply that it sells its products to OEMs,
STUs, the replacement market, export market etc. MRF in the
reply stated that it procures natural rubber from around forty
dealers on daily basis. It was also stated that MRF has no formal
contract for purchase of natural rubber. Additionally, it was
stated in the reply that natural rubber is imported from various
countries and the price is fixed and payment is made in US dollar
terms.MRF has also stated in the reply that it does not import
tyres/tubes. It was admitted by MRF that it is a member of
ATMA. However, it denied any discussion relating to the issue of
price rise at the meetings of the association.
Installed Capacity Actual Production
Year Bias Radial Total Bias Radial Total Utilizati
on %
% Increase/
Decrease
from
previous year
2005-06 2973333 233333 3206666 2329968 65268 2395236 74.7
2006-07 3192223 168000 3360223 2597438 66170 2663608 79.27 4.57
2007-08 3095540 197502 3293042 2611930 92803 2704733 82.13 2.86
2008-09 3068889 286458 3355347 2630853 81932 2712785 80.85 -1.28
2009-10 3235052 334105 3569157 2957026 220795 3177821 89.04 8.19
11
28. The details relating to total production of Truck/Bus (both
Bias & Radial) tyres for the years 2005-06 to 2009-10 and
quantity exported were provided and the same are noted below:
Production and Export
Year Total Production Qty Exported of the total Production
Bias Radial
Bias Radial
2005-06 2329968 65268 419760 55020
2006-07 2597438 6170 440453 41443
2007-08 2611930 92803 402294 34182
2008-09 2630853 81932 347754 20562
2009-10 2957026 220795 424142
Dunlop India Limited (Dunlop)
29. In the reply, Dunlop stated that it has manufacturing
facilities in West Bengal and Tamil Nadu and both these units
were stated to be under the management of Chabria Group till
2005. These units were subsequently stated to be taken over by
the new managementi.e.Ruia Group in December, 2005, but the
operations remainedsuspended till 2008 and thus there were no
manufacturing operations in the market from 1998 to 2008 and
the production and sale was negligible in comparison to the
Indian tyre industry. It was also stated that Dunlop is not
member of any tyre related association. Details of capacity
utilization of the plants were also provided in the reply. Further,
it was stated that market share of Dunlop is negligible and the
import of tyres is nil and the export was also stated to be very
negligible.
Goodyear India Limited (Goodyear)
30. In the reply it was stated that Goodyear sells its products in
India on principal to principal basis. The products are stated to
be sold through dealers and the business dealings are stated to
be governed by the terms and conditions of the invoice. Details
relating to actual production, installed capacity, utilization
percentage were also supplied in the reply. Further, details of
12
production and exports were also provided. It was stated by
Goodyear that it was asked to provide details by the Competition
Commission of South Africa. However, it maintained that the said
action/proceeding is wholly irrelevant for its business operations
in India.
Bridgestone India Pvt. Ltd. (Bridgestone)
31. It was stated in the reply that the core business of the
company comprises manufacture and marketing of steel belted
passenger vehicle radial tyres as also import and marketing of
truck and bus radial tyres. It was stated that the company is not
involved in manufacturing of truck and bus tyres (radial or bias)
in India. It was further stated that the company does not
manufacture any kind of truck/bus radial tyres in India but it
imports the same from the Bridgestone group companies from
Japan and Thailand for sale in India. It was also stated that the
company is not involved in manufacturing or
importing/marketing/trading of bias tyres in India and it was
stated that the company is only in the business of radial tyres.
The company is stated to be member of ATMA since 2007 and it
was stated that during the meetings of the association various
issues concerning the tyre industry viz. import license,
mandatory BIS certification on tyres and tubes, availability and
increase in price of natural rubber, recommendation to the
Government for allowing import of natural rubber at concessional
duty, reduction of import duty on natural rubber etc. were
discussed. Further, it was stated that the Ministry of Finance
vide its notification dated 19.02.2010 has imposed antidumping
duty on the radial tyres used in buses and lorries/trucks
originating in, or exported from Thailand and China. Lastly, it
was stated that the investigation conducted by the South Africa
Competition Commission against Bridgestone South Africa (Pty
Ltd.) has no connection with Bridgestone India Pvt. Ltd. as both
the companies are independent entities and carry out their
business operations independently.
13
Michelin India Tyres Pvt. Ltd. (‘Michelin’)
32. In the reply, it was stated that the company is not engaged
in the manufacture of tyres. It was stated that the company
imports and sells tyres in India which are manufactured by its
affiliate companies outside India. It was further stated that the
company markets tyres in India through dealers. It was also
stated that the company imports tyres for two wheelers, earth
movers, buses and trucks. Details of the imports were also
supplied by the company.
33. Besides, the DG also collected information from ATMA and
OEMs and a brief resume thereof is noted below:
All India Tyre Manufacturers’ Association (ATMA)
34. ATMA is stated to be an association of the domestic tyre
manufacturers. ATMA submitted that it is registered as a section
25 company under the Companies Act, 1956. It was stated by
ATMA in the reply that it has never been associated with or
interfered with the day to day operational activities and freedom
of its member companies. It also stated that it was never
involved in the affairs of any individual company and it has never
provided its members with any platform for carrying out any
activity which is unlawful or illegal or in contravention of any law
for the time being in force including the Competition Act, 2002.
Original Equipment Manufacturers (OEMs)
35. Information relating to import and pricing was collected by
the DG from the major OEMs, viz. Tata Motors, Ashok Leyland
and Eicher Motors (V E Commercial).It is noted from the
information supplied that OEMs procure tyres from domestic tyre
manufacturers and also import from various countries based on
their requirement. The DG also noted that OEMs too are
dependent on the supply of tyres from the domestic tyre
manufacturers.
14
36. During the course of investigation the DG analysed the data
for the reference period i.e. 2005-2010 collected from the five
major domestic tyre manufacturers (Apollo, MRF, J K Tyre, Birla
and CEAT). At the outset, it is noted that, for the purposes of the
present investigation, the DG, considering the commercial utility
of truck and bus tyre segment in transportation and public
importance at large, took into consideration the truck and bus
tyres both cross (or bias) and radial. However, with regard to the
specific and detailed study on cost of production, ex-factory price,
price parallelismetc.,thebias tyres were taken into consideration
for investigation as this segment was generating major chunk of
revenue.
37. Besides, the DG also made a detailed reference to the
secondary documents to corroborate the above findings as these
documents also reflected the conduct of the domestic tyre
manufacturers. In this connection, the DG has referred to the
reports (phase-I, 1985 and Phase-II, 1988) of the studies
conducted by the Bureau of Industrial Costs and Prices (BICP),
Ministry of Industry; Market study on Tyre Industry conducted
by the Jawaharlal Nehru University (2007); final findings dated
29.06.2007 pursuant to the anti-dumping investigation
concerning imports of Bias Tyres originating in or exported from
China PR and Thailand and final findings dated 01.01.2010
pursuant to the anti-dumping investigation involving import of
Bus and Truck Radial Tyres, originating in or exported from
China PR and Thailand of the Designated Authority, Directorate
General of Anti-Dumping& Allied Duties, Department of
Commerce, Ministry of Commerce & Industry, respectively.
38. The DG also examined the conduct of Automotive Tyre
Manufacturers’ Association (ATMA). The DG on examination of
the minutes of the meetings held from 2005-2010 noted that the
members of the association collectively tried to resolve the
common issues which were affecting the domestic tyre
manufacturers adversely. It was also noted that the domestic tyre
manufacturers were facing stiff competition from the importers.
15
The members of ATMA collectively adopted the various courses of
action to protect themselves in this regard viz. by filing of Anti-
Dumping Duty petition, by devising low cost tyre strategy, by
black listing of importers, by discussing issues on export
realizations and by deliberating the issue of unremunerative
prices of tyres supplied to OEMs in various meetings.
Price Analysis
39. The price data for the period of 2005-2010 of domestic tyre
manufacturing companiesviz. MRF, J.K. Tyre, Birla, Ceat& Apollo
was analysed.
40. It was noted by the DG that the major components which
affect the prices of tyres are the cost of natural rubber and the
excise duty. It was noted that the excise duty over the
investigation period has gone down from 16% to 10%.
41. With respect to another component viz. natural rubber, it
was noted that the tyre industry is highly dependent on it which
accounts for 43% of the tyre production cost. Natural Rubber is
procured by domestic tyre manufacturers on daily basis and the
price of natural rubber fluctuates on daily basis. The weighted
average price of the natural rubber during the reference period
was noted and analyzed.
42. Based on the analysis, it was concluded by the DG that
during the investigation period, excise duty has shown a
downward trend and the natural rubber has increased in 2008
but has fallen in 2009 and then again increased in 2010. It was
noted that during the investigation period the net dealer prices of
all the domestic tyre players have continuously increased except
in 2009 wherein a limited decline in prices was observed.
43. Accordingly, the DG noted that these tyre companies have
not passed on the benefit of reduction in excise duty to the
consumers. To buttress the conclusion, reliance was also placed
on the Tariff Commission findings on Tyre Industry.
16
44. To examine the price movement for the specific Lug Tyre
segment of the five domestic tyre manufacturers under
investigation, the DG analysed the weighted average of the net
dealer price.
45. By analyzing the said data, it was concluded by the DGthat
the net dealer price (weighted average) of lug tyre in respect of all
the companies was more or less the same with marginal
difference in their price except Apollo tyre.
46. Further, it was noted that the movement of net dealer price
(weighted average) in terms of actual quantum as also % change
was also found to be similar. It was also noted that the % change
of net dealer price whether upward or downward was showing
close correlation amongst the five tyres manufacturing
companies.
47. Based on the above analysis, it was observed by the DG that
price parallelism existed amongst the fivemajortyre
manufacturing companies which is a good measure/indicator to
show that some kind of information sharing in price had taken
place amongst them.
48. Further, the DG, after finding price parallelism amongst the
five tyre manufacturers, proceeded to analyze the plus factors. In
this regard, the DG made elaborate analysis of data relating to
production; capacity utilization; cost analysis; cost of sales/sales
realization/margin; cost of production and natural price
movement; net dealer price & margin and market share, the
same may also be noted.
Production and Net Dealer Price Analysis
49. The DG examined the relation between the actual
production and net dealer price (weighted average) of Lug Tyres of
the five domestic tyre companies.
17
50. Onexamination of the above, the DG noted that the actual
production of domestic tyre companies has increased except
during the year 2008-09. Further, the same was collated with the
net dealer price (weighted average) change and concluded that
there was a decline of 3% to 20% in actual production of the
domestic tyre companies. It was, however, pointed out that the
corresponding decline in net dealer price was only between 3% -
5% which implied that the companies have not reduced the net
dealer price (weighted price) in proportion to the actual
production.
Capacity Utilization Analysis
51. The DG also examined the capacity utilization of all the 5
major domestic tyre manufacturing companies.
52. It was noted by the DG that the overall capacity utilization
of the tyre manufacturers has been showing a downward trend
and the utilized capacity has dropped down in the case of
companies viz. Apollo, Ceat and J.K.Tyre except MRF & Birla
from 2005 to 2010. In the case of Birla, the variations in capacity
utilization were noted as very high as it dropped from around
97% to 81% in the year 2008-09 and then drastically increased
from 81% to 104% in the year 2009-10.In J.K. Tyre, a drastic
decline in the capacity utilization was noted during the entire
investigation period which reflects under-utilization of capacity.
53. From the above analysis, it was inferred by the DG that
these companies were not utilizing their capacity in full thereby
resulting in limiting the supply.
Cost of Sales, Sales Realization and Margin
54. The DG made a detailed analysis of cost of sales, sales
realization and margin. It was noted that sales include cost of
production, selling and distribution cost, administrative
overheads, advertisement etc. Sales realization is the amount
18
received on sale of each unit. Margin indicates the profit or loss
realized on sale of the product. The analysis was done to get an
idea about the profitability or otherwise of sale of each product.
55. Based on the analysis,it was concluded by the DG
thatmargins for Apollo Tyres have been showing a very healthy
trend and it has reached the highest in year 2009-10. In the case
of JK Tyres, the margin has been improving and has gone up
drastically. The margin, which was 76 during 2008-09, has
gone up to 617 in year 2009-10 which is more than 8 times
compared to previous year. In the case of MRF, the margins have
shown significant improvement in the year 2008-09 and have
further improved in 2009-10.As regards Ceat, it was noted that it
has been able to reduce the negative margin from 802 to 216
in year 2009-10. Birla tyres has shown lower margin for 2009-10
compared to previous year.
56. It was further noted that the cost of sales showed increasing
trend year after year and there has been sharp increase during
2008-09 in almost all the companies which could be due to
increase in the price of natural rubber. Accordingly, the DG
concluded that the companies have the motive of making profit
and hence have been able to earn positive margins in most of the
period in the 5 years.
Analysis of cost of production and natural rubber price movement
57. The DG also conducted a detailed analysis of cost of
production and natural rubber price movement. It was noted that
natural rubber is one of the major components in the cost of
production of tyres. Therefore, examination of the relation and
corresponding movement of cost of production and natural
rubber was undertaken by the DG. The weighted average of cost
of production and natural rubber during the investigation period
was taken for the five domestic tyre manufactures.
19
58. From the analysis of percentage change in the price of
natural rubber vis-à-vis the percentage change in cost of
production in respect of all five domestic tyre companies, the
following findings were recorded:
(i) In the case of J.K.Tyre, MRF and Birla the price
change of natural rubber dropped from 2009 to 2010
showing a reduction of 10% whereas the cost of
production in all these companies increased
substantially, which was contrary to natural market
forces. No satisfactory explanation to such increase in
cost of production from 2009 to 2010 despite
substantial reduction in price of Natural Rubber
wasavailable on record. In fact, in the case of Birla
Tyres and MRF Tyres there is an increase of 22.8% and
41% respectively as against the decline in price by 10%
in Natural Rubber.
(ii) In cases of Apollo Tyres and Ceat, the rate of
percentage change in the price of Natural Rubber from
2009 to 2010 does not show the corresponding rate of
change in the cost of production. Thus where the
percentage change of Natural Rubber price was at
10.5% these two companies have shown a decline of
3% and 3.8% respectively in their cost of production.
(iii) The analysis therefore shows that the tyre
companies have been inflating some miscellaneous
expenses into the cost of production to reduce their net
profit margins. Similarly, the analysis also explains
that the change in price of natural rubber has no
impact on the cost of production and therefore, it does
not explain the possible reason for the increase in price
of tyres by these companies.
20
Analysis of Net Dealer Price and Margin
59. The DG also conducted the analysis of the Net Dealer Price
(Weighted average) of Lug truck tyres vis-à-vis the margin of each
of the five domestic companies under investigation.
60. It was noted by the DG that the analysis of the Net Dealer
Price (Weighted average) of Lug truck tyres vis-à-vis the margin of
each of the five domestic companies under investigation showed a
significant increase in margins from 2006-2010. Thus, it was
concluded that all the companies have been operating on high
margins barring some exceptions as highlighted in the tabulated
data. It was also noted that the margins have increased from
42.04 to 617.92 in the case of J.K. Tyre which is an increase of
almost 15 times in a short span of 4 years. Similarly, in the case
of Apollo Tyres the margins have almost doubled in the last four
years. In view of the above analysis, the DG noted that these
domestic tyre manufacturers have been operating on large
margins.
Market Share
61. A comparative study of the market share was undertaken
for the domestic tyre manufactures.
62. It was noted by the DG that the market share of Apollo
remained consistent at 27% throughout the 3 year period starting
from 2005-2008 and decreased by only around 1.5% in the year
2008-09. The market share of Birla increased substantially by
around 8% in the year 2006-07 and thereafter again decreased
by around 6% in the year 2007-08. The market share of Birla
increased drastically by 10.76% during the investigation period.
No major change in market share of MRF could be noticed
duringthe investigation period except a decline of 1.7% in 2009-
10. Similar was the case with CEAT where no major change
could be noticed in the market share throughout the 5 year
21
period from 2005-2010 but it was reduced by 1% in 2009-10. In
the case of J.K. Tyre, it was observed that the market share kept
on decreasing throughout the 5 year period by around 1-1.5%
each year.
63. It was further noted that during the investigation period the
five domestic tyre companies consistently accounted for around
95% of the market share of the total production which implied
very high concentration resulting in high dependence of OEMs
and the replacement market on these five companies.
Summary of findings of the DG
64. Based on above analysis the DG returned the following
findings:
(i) The tyre companies have not passed on the benefit of
reduction in excise duty to the consumers.
(ii) Price parallelism existed amongst the tyre companies.
(iii) The tyre companies have not reduced the Net Dealer
Price (weighted price) in proportion to the actual
production.
(iv) The tyre companies have not utilized their full capacity
which resulted in limiting the supply.
(v) The companies have been able to earn positive margins
in most of the period under investigation.
(vi) The tyre companies have been inflating some
miscellaneous expenses into the cost of production to
reduce the net profit margins. Similarly, the analysis
also explains that the change in price of natural
rubber had no impact on the cost of production and
therefore, it does not explain the possible reason for
the increase in price of tyres.
(vii) The tyre companies are operating on high margins and
the same is not passed on to the consumers.
(viii) The five domestic tyre companies occupy about 95% of
the market share of the total production. This high
22
concentration made OEMs and the replacement
market highly dependent on these companies.
Conclusionsof the DG
65. Based on the above findings, the DG concluded that the
major domestic tyre companies acted in concert and ATMA
provided the platform to the members for exchange and sharing
of information relating to price, export, import, OEMs etc. Thus,
the DG concluded that ATMA and its five major domestic tyre
manufacturing companies (Apollo, MRF, J K Tyre, Birla and
CEAT) have acted in concert in contravention of the provisions of
section 3(3)(a) and 3(3)(b) of the Act.
Replies of the Parties
66. The Commission, after considering the investigation report
submitted by the DG, decided to forward copies thereof to the
following parties for filing their replies/objections thereto vide its
order dated 02.06.2011 :
(i) All India Tyre Dealers Federation (AITDF)
(ii) M/s J.K. Tyres & Industries Ltd.
(iii) M/s Ceat Ltd.
(iv) M/s MRF Ltd.
(v) M/s Apollo Tyres Ltd.
(vi) M/s Goodyear India Ltd.
(vii) M/s Kesoram Industries Ltd.
(viii) M/s Dunlop India Ltd.
(ix) M/s Michelin India Tyres Pvt. Ltd.
(x) M/s Bridgestone India Pvt. Ltd.
(xi) Directorate General of Anti-Dumping & Allied Duties
(xii) M/s Automotive Tyre Manufacturers Association
(xiii) M/s Modi Tyres Company Pvt. Ltd.
(xiv) M/s Falcon Tyres Ltd.
(xv) M/s TVS Srichakra Ltd.
23
67. None appeared for M/s Dunlop India Ltd., Directorate
General of Anti-Dumping & allied Duties, M/s Falcon Tyres Ltd.
and M/s TVS Srichakra Ltd.
68. Further, on the request of counsel for M/s Modi Tyres
Company Pvt. Ltd. and M/s Bridgestone India Pvt. Ltd., the
Commission vide its order dated 03.11.2011 struck off their
names from the array of parties as M/s Modi Tyres was reported
to be a sick company and was referred to BIFR and further M/s
Modi Tyres and M/s Bridgestone India Pvt. Ltd. were stated to be
not in production during the period of alleged cartelization.
Moreover, no relief was prayed against them.
69. In view of the above, before proceeding further, it would be
appropriate to record a brief resume of the replies of the parties
to the report of the DG.
Reply of AITDF
70. AITDF filed its reply to the report of the DG supporting the
same. It has contended that report of the DG vindicates the
consistent stand of the tyre dealers and tyre users that domestic
tyre companies led by ATMAhave been indulging in restrictive
trade practices by increasing the tyre prices in concerted manner
and by not passing on the benefits of reduction in excise duty to
the end consumers.
71. It has also contended that despite variation in economies of
scales and scale of product mix for variety of tyre sizes, the tyre
companies, through collective mechanism, have been staggering
tyre price revisions exploiting the market. The price revisions
since 2005-06 to 2010-11 and till datei.e. July 01, 2011 display
the same trend i.e. when input prices have gone up, the prices of
tyres and tubes have been increased by all of them within the
virtual same range by varying the revisions by small differential
to give an impression that they have been working in an
independent manner. Similar has been the case with regard to
24
reflection of reduction in excise duty from 32% to 10% in the last
5-6 years and the tyre companies have failed to reflect the
reduction in price of tyres in a similar manner with a minor
variation in percentage and timing. Hence, the price to the dealer
on reduction of excise duty on each occasion has virtually
remained same or with marginal change by way of cosmetic
reduction in price and, consequently, the basic ex-factory price
minus excise duty has been increased pro rataby all of them for
all categories of tyres i.e. truck/bus, LCV, passenger car, tractor
tyre, two/three wheeler tyres etc.
72. It has submittedthat while the natural rubber price during
December, 2010/January, 2011 to June/July, 2011 has gone up
from Rs. 205 per kg. toRs. 240 per kg. tillthebeginning of June,
2011, in the next four weeks, the natural rubber price has come
down and was prevailing at Rs. 210 per kg. Yet all the tyre
companies have increased the tyre prices. It has also been
pointed out that while the prices of other major raw materials like
synthetic rubber, carbon black, nylon tyre fabric, rubber
chemicals (all driven from crude oil) have not crossed the peak
average price of crude oil prevailing during the year 2008 when
the tyre prices were raised on the same pretext and again in the
year 2010, the tyre prices were raised on the back of record
increase in natural rubber price while the Central Government
reduced import duty on natural rubber by 7.5% to protect the
domestic tyre industry. It is further stated that during the year
2006, the tyre prices by all the tyre companies at regular
intervals went up in concerted manner but were not reduced even
after drop in raw material prices to the previous prevailing low
levels. Similarly, in the year 2008 similar exercise was committed
by the manufacturers in unison through several price increasetill
August/September, 2008. However, subsequently when natural
rubber price and prices of all other crude oil based raw materials
dropped to a 3-4 yearlow, thetyre prices were not rolled back by
these non-competing tyre companies which are members of
ATMA. It is also stated that again in the year 2011, the same
25
exercise was repeated between January to July, 2011 despite
ongoing investigation ordered by the Commission.
73. Lastly, it has been submitted on behalf of AITDF that the
rate of return on capital employed in the international tyre
manufacturing industry is traditionally low at 1.5%-2%, but in
case of Indian tyre makersthey have been having a rate of return
ranging from 4% to 6% on annual basis during the last 5-6 years.
The tyre industry world over makes low returns by nature of its
business model as against high rate of returns in case of
hospitality, travel garments, computers, white goods, FMCGs etc.
This only proves that the rate of return among the domestic tyre
majors, irrespective of their size, age and investment and even
product mix has been high at the cost of hapless consumers and
any weak performance for a quarter or so is more cosmetic and
doctoring/management of financial results just to display wrong
impression about their true health, which they cleverly hide in
their deceptive data management.
Reply ofATMA
74. ATMA in its reply to the report of the DG has stated that it
was never named as an opposite party in the complaint filed by
AITDF norany specific information/complaint was made against
it.
75. It has stated that the DG, after requisitioning information/
documents from ATMA has recorded an adverse finding against it
in the investigation report. However, the DG, apart from making
bland references to ATMA minutes/circulars has neither
identified nor placed reliance on any specific minutes of ATMA
meetings where any discussions pertaining to any alleged cartel
like activity is said to have taken place.
26
76. ATMA has also submitted that the prima facie order passed
by the Commission dated 22.06.2010 identified the parties
against which the DG was to conduct investigation. It has been
pointed out that ATMA does not figure in that list. Subsequently,
the DG despite not having sought permission from the
Commission to either expand the period of investigation or the
scope of investigation, has recorded adverse findings against
ATMA. Even assumingthat the DG under the provisions of the
Acthasthe power to expand period and scope of investigation, the
investigation undertaken by the DG is fundamentally flawed and
the investigation report is devoid of any merit. Theconclusions set
out therein are baseless and unsubstantiated in as much as the
DG ought to have identified the evidence/ documents on the
basis of which the adverse finding against ATMA was recorded.
77. It has further submitted that during the course of
investigation, ATMA, in full compliance with the multiple
requisitions, submitted all relevant documents/ information
including minutes of ATMA meetings. It has alleged thatthe DG
hasfailed to identify any specific documents and/or place reliance
on the same in the investigation report and has not annexed any
such minutes/circulars to the investigation report.
78. By way of preliminary objections, it has argued that Anti-
Dumping (AD) proceedings are initiated under applicable
laws/rules/regulations. The AD proceedings are pro-competitive
and are aimed at preventing anti-competitive pricing practices
through imports which would have an appreciable effect on the
domestic industry. It is stated that India is not the only country
where ADD has been imposed on Chinese/ Thai tyre imports.
79. It has further urged that AD rules require industry
representation and trade associations, such as ATMA, are best
suited to represent the domestic industry before the AD
authority. It is stated that a significant number of cases have
27
been filed by trade associations before the AD authority. If the
findings and conclusions set out by the DG in the investigation
report are adopted by the Commission, this would be contrary to
the provisions of section 62 of the Act which states that the
provisions of the Act are in addition to and not in derogation of
any other law for the time being in force. The AD rules are a law
for the time being in force and adoption of the DG’s argumentqua
the AD proceedings will be contrary to the provisions of section
62 of the Act itself.
80. It has averred that the vexatious and persistent
litigation/proceedings undertaken by AITDF is nothing but a
counter blast to imposition of ADD on Chinese and Tyre imports
by the AD authority which directly impacts members of AITDF.
This is a motivated proceeding and the DG has failed to establish
the credentials of the informant. This has beenstatedasa critical
flaw since it allowed the process of the Commission and the
provisions of the Act to be abused. It has further argued that
AITDF information and the DG findings essentially seek to build
in the anti-trust defense doctrine into the legal system in India,
which is clearly not allowed. As per ATMA, to suggest that the
process of the Commission and the provisions of the Act can be
deployed as a defensive measures to adverse findings under other
laws (ADD in this case) would be an affront to the legislative
intent.
81. It has also asserted that ATMA minutes, supplied by the
Commission,relate to the years 2005-2007, which is a period
prior to coming into force of the relevant provisions of the Act. It
has further stated that while the DG appeared to have collected
and analysed data from companies for 2005-2010 period, he has
clearly not placed reliance on any ATMA
minutes/circulars/documents after 2007 (April). Thus, it has
argued that the entire investigation report in as much as it
relates to ATMA, is clearly unfounded, baseless and illogical and
ought to be set aside.
28
82. Responding to the findings of the DG, it has been pointed
out by ATMA that every tyre manufacturer offers products with
identical specifications.The tyre ‘brand’ commands significant
visibility when compared to almost all other components fitted on
vehicles.Tyre production requires highly specialized knowledge
and technology as also significant investment.Tyre producers
have to compulsorily comply with a number of regulatory
requirements in India e.g. BIS which is now mandatory since
May, 2011.
83. It has pointed out that the DG in its report has treated
‘Cross Ply’ and ‘Radial Tyres’ as constituting one product when in
fact they are separate and distinct products.
84. Referring to the findings based on price parallelism or
information exchange,ATMA has pointed out the peculiar
features of the tyre industry. It has submitted that product prices
in the tyre tend to be similar or move in tandem because of
market forces. Further, price parallelism in the tyre industry
arises on account of the fact that the products sold are
homogenous (a consumer can potentially use tyres belonging to
different brands on the same vehicles so long as the
specifications are the same) which makes it difficult for
businesses to charge different prices to customers. Products in
the tyre industry share similar sources of inputs, which
meansthat competitors are subject to similar cost fluctuations in
setting their product prices. Prices of products in the tyre
industry are highly visible, which allows businesses to collect real
time market intelligence and monitor each other’s prices closely
and match competitors’ price movements.
85. It has been pointed out that the DG in its report has failed
to appreciate the critical fact that none of the following actions
29
undertaken by ATMA was aimed at determining the individual
conduct of any of its members:
i) Anti-Dumping Petition
ii) Low Cost Tyres
iii) Blacklisting Importers
iv) Export Realization
v) Supply of Tyres to OEMs
86. It has further submitted that the abovementioned
steps/activities are in line with the roles and responsibilities of
an association such as ATMA i.e. representing an industry group.
It has been contented that if the logic adopted by the DG in its
report is accepted by the Commission, it would lead to an
untenable situation where trade associations representing the
interests of an industry group, will be barred from adopting any
measure necessary to protect the interests of the concerned
industry. Lastly, it has asserted that forming a trade association
per se is not anti-competitive in any manner.
Reply of M/s MRF Limited
87. MRF in its reply to the investigation report of the DG has
submitted that the report fails to demonstrate the conditions
precedent for showing the existence of a cartel. Cartelization is a
serious misconduct and must be set out with particularity. The
report fails to show the existence of an agreement between MRF
and other tyre manufacturers to limit or control the production or
sale or price of goods. It has contended that for this reason, no
allegation under section 3(3)(a) and 3(3)(b) of the Act can be made
and the report ought to be rejected.
88. It has submitted that an ‘agreement’ between competitors is
a condition precedent to establish an allegation of cartel.
Reference has been made to a decision of the Supreme Court in
the case of Union of India v. Hindustan Development
30
Corporation,(1993) 3 SCC 499 at p. 531,para 14 to contend that
mere offering of a lower price by itself, though appears to be
predatory, cannot be a factor for inferring formation of a cartel
unless an agreement amounting to conspiracy is also proved. The
investigation report fails to show that there was an ‘agreement’
between the tyre manufacturers.
89. It has further averred that the report also fails to show the
causation of appreciable adverse effect on competition in India in
terms of the statutory factors laid down under section 19(3) of the
Act. It has urged that this is a condition precedent for the
allegation of a cartel against the tyre manufacturers which has
not been taken into account and hence the report is bad in the
eyes of law.
90. It has been pointed out that the DG has adopted a
theoretical approach and wrongly relied upon the economic
principles of price parallelism out of context ignoring the facts
and data given by MRF. The entire exercise of the DG in this
regard appears to have been based on his own prejudicial
perception about tyre industry rather than on facts and data
produced by MRF during the course of investigation, which have
been totally overlooked.
91. Further, it has argued that the report is wholly without
jurisdiction, fraught with fallacy against the tyre industry and
particularly against MRF based on mere surmises and
conjectures emanating from AITDF complaint, obsolete reports
and ought to be rejected on this count. The investigation has
been fishing and roving enquiry in a premeditated manner
without any reasonable ground or cogent data against MRF and
the report which has been prepared without any basis, should be
set aside on this ground alone.
92. It has been also submitted that the report consists of and
relies upon annexures of more than 400 pages. Many pages in
31
the annexures including the Tariff Commission Reports are not
legible and even otherwise annexures do not have any relevance
being obsolete, unrelated to the subject of investigation and the
conclusion drawn against the tyre companies and
particularlyagainstMRF. It has been contended that the report
ought to be rejected on this ground also.
93. It has contended that the investigation is allegedly
conducted based on information/ allegation filed by AITDF which
is an agency without credibility and has been acting at the behest
of interests which are against the domestic tyre industry which
supports import of tyres. Thus, AITDF is a party having direct
conflict of interest and is a motivated ‘informant’. AITDF is not a
representative body of the consumers or dealers. It is only a self-
styled representative of the alleged tyre dealers. It does not have
any legal character even though it claims to be of considerable
standing and seems to be an unregistered association. Except for
presumptive allegations without basis, there has been no credible
contribution in the form of information and the sole purpose of
AITDF is to make frivolous representations to mislead the
Government machinery against the domestic tyre companies.
94. It is also argued that since the case was transferred under
section 66(6) of the Act, the allegation and the period of coverage
should have been limited to the MRTP Act, 1969 as section 3 of
the Act has come into force only w.e.f.20.05.2009. The
investigation is liable to be closed on this ground alone.
95. It is argued that the investigation report has ignored the
order of the Commission dated 22.06.2010 and has proceeded to
unilaterally extend the period of investigation of the transferred
case from 2005 - 2007 to 2005 - 2010, without giving any reason
whatsoever. This was done since the DG was fully aware that the
provisions relating to anti-competitive agreements under the Act
had come into force from 20.05.2009 and the same could not be
32
invoked unless the period of investigation was extended. The
report is, therefore, without jurisdiction.
96. In the absence of any material facts or particulars
constituting a cartel, the information cannot be regarded as a
valid and proper allegation of cartel, which needs to be answered
by MRF.
97. Referring to case law, it is argued that it is settled law that
price parallelism by itself cannot amount to a price cartel. In this
regard, reference has been made to the decisions of the Full
Bench of the Hon’ble MRTP Commission in the cases of RRTAv.
ACCI Bayer (1993) 1 CTJ 7 at para 25 as well as other decisions
given in Grindwell Norton 1984 Tax LR 2219, India Foils 1984 Tax
LR2010, Hindustan Lever TOMCO 1983 Tax LR 2443, where it
has been held that price parallelism does not amount to cartel. It
is however denied that the investigation report shows price
parallelism of the tyre companies including MRF.
98. MRF denied any allegation of price parallelism or cartel, as
alleged or at alleventhough the information does not make any
clear and specific allegation with material facts and particulars.
99. The letter dated 28.12.2007 from the AITDF is the starting
point of the investigation, which has been lost sight of during the
conduct of the investigation by the DG and in the conclusions
arrived at in the report which travels beyond the allegations
which clearly shows non-application of mind and the report
ought to be rejected on this count.
100. It is submitted that the investigation is purported to be
carried out pursuant to an order under section 26(1) of the Act
dated 22.06.2010 by the Commission on a transferred case from
the DG (I&R), the MRTP Commission under section 66(6) of the
33
Act. The scope of the investigation hereunder cannot be extended
beyond the scope of the complaint under the MRTP Act, 1969.
The letter dated 28.12.2007 from AITDF to Ministry of Corporate
Affairs cannot be considered under the provisions of section 19 of
the Act. No new information has been relied upon by the
Commission to extend the scope of investigation upto 2010, nor
was an order to that effect passed. The investigation, hence, is
without jurisdiction and the investigation report needs to be
rejected on this count.
101. It is the case of MRF that the investigation proceeded
allegedly on the allegations by AITDF. Apart from the general
allegations made against the tyre industry viz. anti-trade, anti-
competition and anti-consumeretc., one of the main allegations
against the tyre manufacturers is that they are usurping the
excise duty reduction. However, it has been pointed out that the
main grievance as seen from the alleged complaint is related to
imposition of Anti-Dumping Duties which are not under the
purview of the scope of the Commission for the following among
other reasons:
a) Both the provisions work under different statutes and
the authorities work under different ministries of the
Government of India. In free trade, firms are allowed to
charge different rates in different market. The result
would be that firms would charge lower prices in
foreign markets and higher prices in domestic markets,
leading to material injury to the domestic producers.
Had price discrimination taken place by a monopoly
firm within one economy, the Government can
intervene to stop consumer exploitation by
enforcingalaw like the Competition Act, in India.
However, in the international context, it is the anti-
dumping duty that protects the domestic producers
initially and consumers in the long run.
34
b) The main purpose of imposition of Anti-Dumping Duty
is to protect the domestic industries from predatory
pricing. Dumping is a pricing practice where a firm
charges a lower price for exporting goods than it does
for the same goods sold domestically. It is said to be
the most common form of price discrimination in
international trade. It is a subtle measure of protection
which comes under the non-tariff barriers and is
product and source specific. Anti-dumping duties were
initiated with the intention of nullifying the effect of the
market distortions created due to unfair trade
practices adopted by aggressive exports. The duty is
justified because in case of many industries the start-
up period is long and start-up costs are also high.
Once these firms are forced out of the market as a
result of dumping by exporters, it is very difficult for
them to restart when the same exporters raise
priceswhich is detrimental to the domestic industry
affecting the livelihood of many.
c) Usually the intentions of charging such low price to
foreign consumers are to be able to wipe out the
domestic industries and eventually acquiring monopoly
power in the foreign market through predatory pricing.
Thus, it is on this ground that the anti-dumping duties
have been justified. AITDF is making its intentions
amply clear regarding its prejudice directly to the
domestic manufacturers and indirectly to the
consumers in the long run. The intention of AITDF to
stall or influence the Anti-Dumping Proceedings by
initiating action against the tyre companies including
MRF is illegal and uncalled for and hence the report
made thereon ought to be rejected.
102. Besides, para wise comments have also been filed by MRF to
the report of the DG.
35
103. Summing up the submissions, MRF has contended that the
DG has erroneously proceeded to target it overlooking and
ignoring the conduct of the Chinese tyre manufacturers who are
dumping both bias and radial tyres in India at prices which are
extremely low thereby adversely impacting the domestic tyre
industry as a whole. The approach of AITDF is to support the
said interests. The DG in its report has totally lost sight of the
interest of the domestic tyre industry and is insistent on giving a
report against the MRF and other tyre manufacturers and
thereby furthering and advancing the interestsof the Chinese tyre
manufacturers.
104. The DG has also ignored the fact that AITDF is acting in an
unfair manner by addressing representation in respect of levy of
anti-dumping duty notwithstanding the fact that there is a Final
Finding by the Designated Authority both in respect of bias tyres
by its order dated 29.06.2007 and radial tyres by its order dated
01.01.2010.
105. The DG has ignored the fact that the Designated Authority
is a distinct and different authority constituted under the
Customs Tariff Act and AITDF is trying to do indirectly what
cannot be done directly by seeking the intervention of the
Commission in respect of matter relating to levy and removal of
anti-dumping duty under the said Act.
106. The DG has completely ignored the fact that AITDF is
abusing the process of law by having a second round before the
Commission in respect of levy and removal of anti-dumping duty.
The DG has also ignored the findings of the Designated
Authority, which are final findings of fact and which can only be
challenged in appeal before CESTAT.
36
107. The DG has also overlooked the order dated 31.03.2011
passed by CESTAT where the appeals against the FinalFinding
dated 29.06.2007 filed by ATIA and ACOGwere dismissed.
108. It is further submitted that the letter/representation dated
28.12.2007 filed by AITDF to Corporate Affairs Ministry, news
item dated 28.12.2007 in the Times of India and a document
dated 09.06.2007 signed by Mr. S.P. Singh, Convener, AITDF
cannot be regarded as information within the meaning of the Act
either individually or collectively, warranting the conduct of any
investigation by the DG, CCI. However, the letter dated
28.12.2007 was treated as information by the MRTP Commission
resulting in the commencement of the investigation and the same
is being continued by the DG, CCI.
109. It has been submitted that a bald and bare allegation of
price cartel in the absence of any specific instance, any specific
period or any specific type of tyre cannot be regarded as a valid
and proper allegation of price cartel.
110. It has been contended that the only grievance made in the
complaint is that the tyre manufacturers failed to reduce prices
when rubber prices dropped to Rs. 82/kg. during July, 2006.
This cannot and does not constitute an allegation of cartel which
calls for an investigation. The allegation has to be viewed in the
context of MRF having not effected price increase proportionate
with the increase in natural rubber prices during the period
January to June, 2006when the natural rubber prices had
peaked.Merereference to price cartel or price concert or price
unison, in the absence of any facts or material particulars,
cannot be regarded as a valid and proper allegation of price
cartel.
37
111. Reference has been made to a decision of the Supreme
Court in the case of Union of India v.PanduramKashinath More
AIR 1962 SC 630 at para 10 to contend that an allegation of
improper conduct has to be made with material particulars and
in the absence thereof, cannot be regarded as a valid and proper
allegation of improper conduct. The said decision of the Supreme
Court was followed by the Bombay High Court in the case of
Raymond Woollen Mills v. MRTP Commission, 1982 Taxation Law
Report 2590 and also by the Karnataka High Court in the case of
Micov. MRTP Commission, 67 Company Cases 377.
112. It is argued that the aforesaid legal principle of setting out
an allegation of improper conduct with material particulars is
applicable to any allegation of anti-competitive agreements made
under section 3 of the Act including section 3(3)(a) and 3(3)(b)
thereof sought to be invoked in the present case which is patently
wrong and hence the report is liable to be dismissed.
113. It is sought to be contended that general allegations
however strong may be the words in which they are stated, are
insufficient to amount to an averment of fraud of which any court
ought to take notice.It is not a sufficient compliance with the rule
to state facts and circumstances which merely imply that the
defendant, or someone for whose action he is responsible, did
commit a fraud of some kind. There must be a probable, if not
necessary, connection between fraud averred and the injurious
consequences which the plaintiff attributes to it; if that
connection is not sufficiently apparent from the particular stated,
it cannot be supplied by general averments.
114. It has been pointed out that the Ministry of Corporate
Affairs by letter dated 28.01.2008 forwarded AITDF
representation to theMRTP Commission. The MRTP Commission
had by order dated 13.02.2008 considered the
representation/letter dated 28.12.2007 and directed an
investigation under the provisions of the MRTP Act, 1969 even
38
though the MRTP Commission had noted that the allegations of
restrictive trade practice were not substantiated or elaborated.
115. Reference has been made to the decision of the Supreme
Court in the case of Competition Commission of India v. SAIL,
(2010) 10 SCC 744 where certain directions were passed in para
135 of the order and the same have been quoted to the following
effect:
“(D).The Director General in terms of Regulation 20 is
expected to submit his report within a reasonable
time. No inquiry by the Commission can be proceeded
any further in absence of the report by the Director
General in terms of Section 26(2) of the Act. The
reports by the Director General should be submitted
within the time as directed by the Commission but in
all cases not later than 45 days from the date of
passing of directions in terms of Section 26(1) of the
Act.”
116. From the above, it is sought to be urged that there has been
a considerable delay on the part of the DG, the MRTP
Commission and the DG, CCI in conducting and completing the
investigation and submitting the investigation report. It is argued
that the delay in completing the investigation and submitting the
report has resulted in grave prejudice to MRF as a tyre
manufacturer besides being in total and complete violation of the
direction given by the Supreme Court to complete the
investigation and submit the report in all cases not later than 45
days from the date of passing of direction in terms of section
26(1) of the Act.
117. It is further contended that the Customs Tariff Act, 1975
and the Customs Tariff (Identification, Assessment and Collection
of Anti-dumping duty on dumped articles and for determination
39
of injury) Rules, 1995 form a complete and comprehensive code
and the orders passed thereunder cannot be agitated in these
proceedings though a backdoor approach by AITDF.
118. It is alleged that though AITDF has referred to final findings
dated 29.06.2007 of the Designated Authority imposing anti-
dumping duty on truck/bus Bias tyres imported from China and
Thailand and final findings dated 01.01.2010 of the Designated
Authority imposing anti-dumping duty on truck/bus Radial tyres
imported from China and Thailand, AITDF has failed to point out
the Final Findings dated 26.08.2010, being a Mid-Term Review
and Order dated 18.11.2010 passed by the Customs, Excise and
Service Tax Appellate Tribunal (CESTAT).
119. In conclusion, it has been prayed that the investigation
report should and ought to be rejected on account of the fact that
the investigation was without jurisdiction and the scope of the
transfer of the case under section 66(6) of the Act was to
conclude the proceedings under the MRTP Act, 1969 and not
purported to extend the scope under the Act.Finally, it has been
prayed that the proceedings may be closed.
Reply of Apollo Tyres Limited
120. Apollo has filed detailed objections to the report of the DG.
At the outset, it has contended that the DG failed to prove any
specific allegation against it. It has been stated that it is an
essential ingredient to prove any allegation of anti-competitive
conduct to demonstrate how a particular enterprise has violated
provisions of the Act i.e. how such an enterprise has entered into
an agreement which is in violation of the provisions of section
3(1) read with section 3(3) of the Act.
121. It has been submitted that the findings of the DG are based
purely on circumstantial evidence of parallel behavior which,
40
according to the DG, is a violation of the provisions of the Act. It
is stated that mere price parallelism cannot be considered as
evidence of collusive conduct. The DG’s report is purely based on
speculation and the conclusions about parallel behavior are
wholly unsustainable, particularly given the complete lack of any
specific or direct evidence relating to Apollo in particular or the
alleged cartel generally.
122. It has been stated that in the absence of any specific
allegations being made and without backing of any cogent
evidence, and even on the balance of probabilities, the DG’s
report must be dismissed in its entirety.
123. It has been pointed out that the DG has committed a
fundamental error in failing to establish the timeframe in which
the alleged cartel/anti-competitive activities took place, which is
essential to many aspects of the case, including the period during
which section 3 of the Act was not in force. Further, it is stated
that the DG’s report fails to give any reason for extending the
period and scope of investigation beyond 2008 without any
specific direction from the Commission. The mere fact that theDG
has investigated the conduct of tyre manufacturers, between
2005 and 2010, in the absence of precise and coherent proof,
does not in any manner indicate that any infringement occurred
during such time frame.
124. It is the case of Apollo that the Commission formed its prima
facie opinion only on the basis of the information and record
available till 2008. There is no evidence on record which shows
that the Commission collected or gathered any evidence relating
to any alleged infringement after 20.05.2009 i.e. after the Act
came into force but before the Commission formed its prima facie
opinion. Therefore, it is urged, the investigation could not have
been extended beyond the timeframe originally alleged in the
information, which relates to the period prior to 20.05. 2009.
41
125. It is argued that for a cartel to survive there must be
mechanisms in place for (a) coordinating the cartel agreement
and ensuring the functioning of the cartel, (b) monitoring the
behavior and conduct of the members of the cartel, and (c)
punishing members of the cartel who do not fall in line with the
decisions of the cartel. In the present case, the DG has failed to
produce any evidence whatsoever that suggests that any of the
above mentioned elements, which are critical to the operation
and sustenance of any cartel arrangement, are present in the
Indian tyre industry.
126. It is the case of the informant that in an industry (a) which
is fragmented, (b) where market shares are unstable, and (c)
where there is ease of entry, collusion is highly unlikely. This has
been stated as a reason to contend that the industry conditions
in India are simply not conducive to cartelization in the tyre
sector.
127. Objection has also been taken on the ground that the DG
has made very general and unsubstantiated statements regarding
the industry without any specific reference to and evidence
against Apollo in relation to its alleged role in the alleged cartel. It
is alleged that the intention of the DG while conducting the
investigation was to reach a finding of infringement under any
circumstance, whatsoever, demonstrating a significant bias
against Apollo.
128. Apollo emphatically denied that it engaged in any anti-
competitive behavior in violation of the provisions of the Act. It
specifically denied that it entered into any agreement, anti-
competitive or otherwise, with any other tyre producer regarding
pricing, manufacturing or distribution of tyres in India.
42
129. It is averred that without any direct, precise or coherent
evidence, which is essential to prove an agreement and come to a
conclusive finding of infringement under section 3(1) read with
section 3(3) of the Act, the findings in the DG’s report are not
sustainable. Reference has been made to the decision of the
Commission in the case of NeerajMalhotrav. Deutsche Post Bank,
Case No. 05 of 2009 which provides that, in order to establish a
finding of infringement under section 3(1) read with 3(3) of the
Act, the agreement must be established unequivocally.
130. It is asserted that Apollo neither engaged in any activity nor
ever entered into any agreement or concerted practice to directly
or indirectly fix prices, limit production or supply, or in any other
way, violated any provision of the Act. The DG has merely relied
on the parallel nature of price movements, production and
dispatches to suggest that there exists a cartel in the Indian tyre
industry, which is a completely skewed and convenient
conclusion, in gross ignorance of the market conditions in which
the Indian tyre industry operates.
131. The DG failed to appreciate that there exists significant
differentiation and heterogeneity in the Indian tyre industry with
different producers producing a large variety of tyres. The DG
completely ignored the fact that the availability of wide-range of
tyres makes it more difficult to monitor cheating, essential to any
alleged cartel’s sustenance, making collusion harder to sustain.
Therefore, argues Apollo, coupled with significant variance in the
product offering in the Indian tyre industry and lack of any
evidence adduced by the DG on the mechanism of the operation
or enforcement of the alleged cartel clearly suggests, that the
operation of a cartel in the Indian tyre industry is neither likely
nor possible.
132. It is averred that Apollo has not engaged in limiting the
supply or production of tyres as it has been consistently
operating on 89% - 94% of its available capacity, during the last
43
five years, which cannot under any circumstance be considered
to mean that it has been withholding its production artificially to
the detriment of the consumers.It has been pointed out that
capacity utilization in the Indian tyre industry is 70-90%.
133. It has been contended that the prices of tyres are not above
competitive levels as stated by theDG. Tyre prices, as they
currently stand, are not sufficient to sustain re-investment in the
additional capacity to meet expected demand in future. In
addition, while many tyre producers have reported losses in the
last few financial quarters, all of them have reported a fall in
profits and margins over many quarters. It has been further
submitted that the tyre price rise has been far below the general
Indian inflation level. On this basis alone, it is argued that it is
inconceivable that there is cartelization in the Indian tyre
industry. The tyre industry has faced steeply rising input costs.
Over time, it is averred, which increases have, to a large extent,
been absorbed by Apollo because of the inability to pass on costs
through price increases due to intense competition in the market
place.
134. It has been urged that the Indian tyre industry is highly
competitive and has witnessed and continues to witness
significant growth, both in terms of capacity addition and entry of
new competitors. Further, the Indian tyre industry has seen
significant new entrants such as Michelin and Yokohama
coupled with imports from other low cost countries such as
China despite anti-dumping duties, clearly indicates that the
market is highly competitive and therefore, the issue of existence
of a cartel does not even arise.
135. It is the case of Apollo that it always acts independently in
determining its commercial affairs and does not engage with its
competitors on any issue which might be considered as a
violation of the provisions of the Act.
44
136. Challenging the findings of the DG holding Apollo in
contravention of the provisionsof section 3(1) read with sections
3(3)(a) and 3(3)(b) of the Act, it has been contended that the DG
has failed to establish the required elements to make out a
sustainable case under the provisions of the Act and therefore,
the Commission must set aside the findings of the DG and close
the case against Apollo.
137. Assailing the findings of the DG which suggest that the
mere fact that prices for one particular T&B LUG tyre have moved
in parallel is sufficient to establish an agreement for the purposes
of section 3 of the Act, it has been argued that the existing
jurisprudence in India, the European Union (EU) and the United
State of America (US) does not in any way suggest that mere price
parallelism, which is the only evidence put forth by the DG,
would suffice. Further, it has been suggested that the same can
never be conclusive measure of collusive behavior. The DG has
also mis-stated the law which has been clearly laid down by the
MRTP Commission in various cases and by other courts in the
EU and the US.
138. It is averred that the DG has relied purely on circumstantial
evidence i.e. economic evidence of market behavior to suggest
there is an indication of collusive behavior in the tyre industry. It
is alleged that the DG failed to accurately analyze the
circumstantial evidence and its analysis is not supported by
strong economic principles.
139. Referring to the findings of the DG relating to price
parallelism, it is argued that price parallelism essentially means
that prices for a particular product move in a similar manner. It
has been highlighted that the DG in its report noted that prices of
the tyre companies moved in a similar direction, and finally
concluded that there exists price parallelism in the Indian tyre
45
industry. Based on the price parallelism, the DG concluded that
there is a concerted action. Challenging this finding, it is argued
that the DG jumped to conclusions based on its half-hearted
attempt at proving price parallelism, other than which the DG’s
report adduces no evidence of the alleged cartelization. It is
sought to be contended that it is well-settled globally that price
parallelism, by itself, cannot amount to an evidence of collusive
behavior.
140. It is the case of Apollo that sporadic parallel and
independent behavior of tyre producers, responding to the
prevalent market conditions, cannot be demonstrative of any
agreement under section 3 of the Act. The DG has failed to
provide any evidence of such an agreement.
141. It is also alleged that the DG made significant
computational errors in arriving at its findings on price
parallelism. The DG, for reasons only known to him, has
examined prices of only one specific type i.e. LUG tyre to
ascertain the evidence of parallel pricing.
142. The DG has not produced any evidence, including economic
evidence, to show that mere parallel pricing leads to an inference
of an agreement. Further, the DG failed to adduce any evidence
to prove that the parallel pricing in the tyre industry, taking into
account the nature of the products and the industry, the size and
the number of producers and the volume of the market in
question, cannot be explained otherwise than by collusive
behavior. Even if it is assumed, without admitting, there was
price parallelism, there is no reason to believe that the pricing
behavior of the tyre manufacturers was not a result for the
legitimate market conduct but some collusive conduct. If the
Commission were to accept the DG’s conclusions purely on the
basis of parallel pricing, then no supplier/seller, in any industry,
will be able to follow a general price increase/ decrease
introduced by a competitor. If pure price parallelism is
46
considered to be sufficient proof of an agreement, even in the
absence of conclusive evidence proving an express or implied
agreement which is the clear requirement under the Act, it would
result in the absurd outcome as competing manufacturers in any
given market would not even be able to match price cuts, which
would clearly be detrimental to the consumers and to competition
in the market at large.
143. Alluding to the findings of the DG to the effect that the
average capacity utilization in the Indian tyre industry dropped
during 2005-2010 leading to an inference that the tyre
manufacturers were not utilizing their capacity in full and
therefore limited supply, it is contended that the DG has applied
an incorrect measure to assess the industry-wide capacity
utilization levels on the basis of installed capacity and has not
considered the capacity that is actually available for production
which takes into consideration various factors associated with
functioning of a tyre plant such as ramp-up time, downtimes due
to maintenance and /or breakdowns, age of the plant, plant lock-
outs etc.
144. It is agitated that one of the key objectives of a cartel is to
enhance the profits earned by the cartel members by fixing prices
at levels that are close to monopoly level i.e. well above levels that
would have prevailed if the producers had actively competed with
each other. Prices cannot be kept at elevated levels if producers
do not keep supply levels sufficiently low in relation to demand.
In order to ensure that production and supply are low, it is often
the case in cartels that there is very little capacity addition over
time and in some cases, even a reduction of capacity. By
ensuring that capacity and capacity additions are kept in check,
cartelists can prevent other members of the cartel from
‘cheating’on the rules by secretly producing more (with their
unused capacity) and increasing their individual market share.
This is clearly not the case here, as there have been significant
industry-wide capacity additions over the last few years. It is
47
urged that Indian tyre industry generally and Apollo in
particular, haveadded significant capacity over last few years.
This fact alone completely discredits any argument made by the
DG that Apollo has limited the production and supply of tyres in
collusion with other tyre producers.
145. Impugning the analysis of the DG relating to capacity
utilization, it has been pointed out that the DG erred in its report
by focusing on capacity utilization and concluding the existence
of a cartel based on perceived low capacity utilization levels,
without analyzing the key variables that drive capacity utilization
viz.capacity, demand and production etc. Technical constraints
relating to operation of new capacity need to be factored into the
calculation of capacity utilization. It is widely understood in the
tyre industry that 100% of the installed capacity is not available
for production from the first year a plant is commissioned and
even thereafter. This is primarily because of various issues such
as lead time (ramp-up) that is required by a plant to stabilize
production, maintenance (both scheduled and un-scheduled),
labour unrests etc.The DG has further ignored the fact that there
was global economic crisis in or around 2008-2009 and the tyre
industry was also adversely affected by the same because of the
reduced demand by original equipment manufacturers i.e.
automotive manufacturers and reduced demand in the
replacement segment. TheDG has drawn generalized reference to
capacity utilization without considering specific aspects of each
company and why there are movements in relation to the
capacity utilization data. It is the case of Apollo that its capacity
utilization has been consistently very high except for a short
period in 2008-2009. It is alleged that the DG has completely
failed to take into consideration that the lock-outs took place
during the investigating period, thereby grossly mischaracterizing
Apollo’s capacity utilization.Acloser scrutiny of the production
figures reveals that Apollo has continuously added capacity and
increased its production during the last 5 years and there was a
drop in production in 2008-09 due to force majeure (lock-out at
48
its plants). In spite of lock-out at one of its plant in 2009-10,
Apollo’s actual production has gone up by 23%. In fact, on an
industry wide basis, Apollo is the only tyre manufacturer in India
which has added highest capacity during last 5 years.
146. Dealing with the issue of pricing of tyres above competitive
levels, it is sought to be contended that the Indian tyre industry
is highly raw material intensive, with raw material accounting for
about 65-70% of the production cost for tyres. The key raw
materials used in the manufacturing process are natural rubber
(about 43% of the total raw material); synthetic rubber (about
15%); nylon tyre cord fabric (NTCF) (about 18%); carbon black
(about 11%) and rubber chemicals (about 5%).
147. Challenging the findings of the DG to the effect that the
major component which affects the price of tyres is the cost of
natural rubber and the excise duty, it is argued that purely from
the raw material input costs, there are number of other
components which contribute significantly to the price of tyres,
which the DG failed to take into account.
148. It has been argued that tyre manufacturers’ cost of
production and consequently margins are dependent on the price
movements of raw materials. The prices of natural rubber, the
key raw material constituting around 43% of the total tyre
production costs, witnessed a shape rise during fiscal 2010-11.
Domestic rubber prices increased from lows of Rs. 95/kg in May
2009 to highs of Rs. 240/kg in April 2011 while global natural
rubber prices rose from USD 1.64/kg to USD 4.83/kg during the
same period. This unprecedented price was on account of a sharp
increase in demand-particularly from the global tyre industry,
rise in crude oil prices, and speculative interest in global rubber
futures. Coupled with the demand spike, supply was disrupted
by adverse climatic conditions in key rubber cultivating countries
like Thailand (largest producer in the world), Indonesia, India and
China. It has also been pointed out that the DG has considered
49
per kg weighted average cost of natural rubber as derived from
the Rubber Board’s database, which gives an indication of cost
on yearly basis whereas the cost of natural rubber fluctuates on
daily basis. Further, the cost of natural rubber to the tyre
manufacturer depends on the cost of imported natural rubber
which also fluctuates in international markets, coupled with
fluctuations in foreign exchange rates. Hence, it is argued that
considering average domestic price is incorrect. Additionally, it is
contended that the average price of natural rubber has increased
significantly over the last eight years, which in turn have had a
significant ‘knock-on’ impact on the cost of production of tyres
and consequently increase in tyre prices.
149. It has been pointed out that the report has failed to analyze
movement in other elements of the cost of productioni.e.utility
cost, crude oil, nylon prices, salary & wages, depreciation,
general administration cost etc. The tyre industry involves heavy
investment in research and development (R&D) and technological
advancements. The DG has failed to appreciate the other costs
involved in the tyre industry and has gone merely by price
movement in natural rubber. This is a faulty approach, argues
Apollo.
150. Grievance is also made of the fact that the DG has made
general observations that tyre manufacturers have not passed on
the benefits of the decreased excise duty to the customers. It is
alleged that in complete contrast to the assertions/findings by
the DG, Apollo has been diligently passing on the benefits of
excise duty reductions in the best interests of its customers.
151. It is also contended that the mere fact that Apollo is making
profits on the sale of tyres cannot be suggestive of violation of the
Act. The DG has failed to appreciate that Apollo’s profits have
fallen, clearly showing that the market conditions are volatile and
competitive, which cannot support the formation or existence of a
cartel either in theory or inthe ‘real world’. The DG has also failed
50
to appreciate that the cost of sales has increased substantially
over last five years. The DG’s method of considering absolute
operating margins to measure profitability are fatally flawed
because gross or operating margins on their own cannot indicate
whether prices charged by any company are supra-normal.
152. Coming to the market share analysis of Apollo and the
industry, it has been pointed out that the DG has examined
market shares for the period 2005-10 for the five manufacturers
using the information submitted by Birla Tyres. The DG has
concluded that during the investigation period the five domestic
tyre companies consistently accounted for around 95% share of
the total production. This, according to the DG, implied very high
dependence of OEMs and the replacement market on these five
companies. In addition to that, the DG also noted the movement
in the shares of the respective manufacturers for the period
under investigation.
153. Apollo has challenged the market share analysis conducted
by the DG. It has been pointed out that the market shares of key
players in an industry can have significant impact on their ability
to arrive at an agreement. The analysis has been challenged inter
alia on the grounds that the DG failed to take into consideration
imports as also the fluctuations in market shares.
154. Challenge is also laid to the findings of the DG to the effect
that Apollo’s prices are higher than the other major domestic tyre
manufacturers which strengthened the argument that there
exists price leadership. It has been submitted by Apollo that
whilst the DG has made some theoretical assertions, it has
completely failed to prove that there exists price leadership. The
DG has not adduced even a single piece of empirical evidence to
prove that price leadership exists in this market. Further, the
mere fact that Apollo charges a higher price than other tyre
manufacturers does not in any way, in the absence of any direct
51
and cogent evidence, suggest that other manufacturers follow
Apollo’s price as a result of some kind of anti-competitive
agreement. If the DG’s logic is to be believed, it would mean that
all manufacturers who independently decided to follow the
pricing of a company with a higher price in the market would be
unable to do so without breaching the Act. Such a result would
not only be erroneous but also absurd as it would lead to
suppression of independent decision making and completely
destroy the dynamics of a competitive market.
155. Referring to the findings of the DG that the domestic tyre
manufacturers have collectively tried to resolve or frame collective
strategy in order to protect themselves and exchanged
information in relation to developing strategy on low cost tyres,
export realizations, anti-dumping proceedings etc., it has been
strenuously argued by Apollo that it has not indulged in any
exchange of information, either on its own or through ATMA,
which may in itself be considered as or result in anti-competitive
agreement.
156. Apollo is also aggrieved of the fact that the DG relied upon
historic data, which in some cases was more than 25 years old to
substantiate his findings. Such reliance on these historic reports
was completely fallacious and sought to portray an incorrect
picture, which is divorced from the reality of present day demand
and supply conditions faced by market participants. Further, the
findings in these reports/studies cannot even be considered as
circumstantial evidence since it is purely historic and in some
cases is more than35 years old, and the conclusions given in the
reports (especially the academic studies) is not based on complete
data. There are inherent gaps in these reports. Further, these
reports do not in any event suggest that there is an agreement
among various tyre manufacturers in violation of provisions of
the Act.
52
157. The DG has sought to produce the findings of the Tariff
Commission, to suggest that the tyre manufacturers were making
huge profits and the market forces have been unable to bring
benefits to the consumers in the form of lower price. The Tariff
Commission reports, are in respect of Tariff Commission Report
Phase I (1985) and Tariff Commission Report Phase II (1988)
which clearly suggests that one was prepared approximately 26
years ago and the other was prepared 23 years ago. It is alleged
thatthese reports are completely out of date and relate to a period
which was steeped in License Raj, when there were little or no
imports and are therefore completely divorced from the market
realities of today. The reliance by the DG on these reports is
totally misplaced and the same must be out-rightly rejected by
the Commission, submits Apollo.
158. Additionally, referring to the Anti-Dumping Duties, it has
been submitted that consequences of Government action or
policy cannot be attributed to the enterprises carrying on
business in the industry. Government policy is not a result of an
agreement amongst enterprises. Therefore, the Commission is not
an appropriate forum to challenge Government policy. Anti-
dumping measures by the Government are purely policy
decisions which are out of the jurisdiction of the Commission.
Apollo cannot be held liable on account of anti-dumping duties
levied as result of the policy decision of the Government of India
and allegations in relation to these should be dismissed in their
entirety. Further, it is averred that the anti-dumping duty has
been removed with effect from August 2011 placing imported
tyres in direct competition with the domestic tyre manufacturers.
159. Lastly, grievance has been made relating to some alleged
procedural errors viz. extension of investigation period by the DG;
infirmity in the prima facie order; lack of reasons etc. Besides,
some miscellaneous arguments have alsobeen made by Apollo.
53
160. Based on the above submissions, it has been prayed to the
Commission to dismiss the findings of the DG in its entirety and
to exonerate Apollo from all the allegations.
Reply of M/s JK Tyre & Industries Ltd.
161. J K Tyre has filed its reply to the report of the DG. It has
pointed out that the report overlooks and ignores the scope of the
AITDF letter dated 28.12.2007 which has been treated as
information limiting the allegation to removal of anti-dumping
duty and not passing on the benefit of excise duty reduction. It is
stated that both the aforesaid allegations are outside the scope of
the MRTP, Act, 1969 and the Competition Act, 2002. The
allegationsrelating to the anti-dumping duty and removal thereof
fall under the purview of the Customs Tariff Act, 1975 and the
Customs Tariff (Identification, assessment and collection of anti-
dumping duty on dumped articles and for determination of
injury) Rules, 1995 (Anti-Dumping Rules).
162. To buttress the point, reference has been made to the
decision of the Supreme Court in the case of Haridasv.All India
Float Glass Manufacturers Association, (2002) 6 SCC 600 where
it was held that the two statutes and regimes operate in different
and distinct spheres and there is no conflict between them.
Referring to para 48 of the order, it has been pointed out that the
Supreme Court held that whether to allow imports or not and the
terms on which an item may be imported is a matter of policy
and regulated by law. In para 49, it was held that to allow a
challenge to actual import will amount giving to MRTP
Commission jurisdiction to adjudicate upon the legal validity of
the provisions relating to imports, which jurisdiction
theMRTPCommission does not have. Thus, it is contended that
the rate of import duty, which is imposed, is a legislative act and
is, thus, not amenable to jurisdiction of the MRTP Commission.
The levy or non-levy of anti-dumping duty or other duty being a
legislative act under the Customs Tariff Act is also not a matter of
judicial review by the MRTP Commission.
54
163. Further, it has been averred that the Customs Tariff Act,
1975 and the Customs Tariff (Identification, assessment and
collection of anti-dumping duty on dumped articles and for
determination of injury) Rules, 1995 (Anti-Dumping Rules) form a
complete and comprehensive code. It has been submitted that
allegationsmade by AITDF against levy of anti-dumping duty on
import of truck/bus tyres (Bias) could be agitated only before the
Designated Authority or the Tribunal (CESTAT) and could not be
agitated before the Commission.
164. It is alleged thatAITDF is guilty of suppression very
andsuggestionfalsi as it has suppressed material facts from the
DG and the Commission. It has been pointed out that AITDF by
its representation dated 28.12.2007 suppressed the fact that the
Designated Authority by Final Findings dated 29.06.2007 had
imposed anti-dumping duty on trucks/bus tyres (bias) imported
from China and Thailand after an extensive hearing where the
AITDF had also fully participated and made their submissions
and the AITDF had not filed any appeal against the Final
Findings of the DA. By suppressing the above facts, it is alleged
that AITDF was able to abuse and misuse the judicial process by
persuading the DG (I&R) and the DG, CCI to investigate the
matter notwithstanding the fact that the Final Findings are final
and binding qua AITDF and consequently, any grievance in this
regard could not be entertained. It is further alleged that AITDF
also failed to point out to the DG the Final Findings dated
26.08.2010, being a Mid-Term Review, passed by the DA
enhancing the anti-dumping duty and Order dated 31.03.2011
passed by the Central Exercise and Service Tax Tribunal
dismissing the appeals filed against the Final Findings dated
29.06.2007 of the DA.
165. Raising the plea of res judicata, it is argued that the same
would constitute a bar to the very entertainment of the
55
information filed by AITDF pending before the Commission
seeking the relief of removal of anti-dumping duty. Reference has
been made to the provisions contained in section 11 of the Code
of Civil Procedure, 1908 which provides that no Court shall try
any suit or issue in which the matter directly and substantially in
issue has been directly or substantially in issue in a former suit
between the same parties or between parties whom they or any of
them claim, litigating under the same title, in a court competent
to try such subsequent suit or the suit in which such issue has
been subsequently raised, and has been heard and finally
decided by such court. It has been urged that the principle of
generaliaspecialibus non deroganti.e.in case of a conflict between
the general and special provision, the latter provision would
prevail.
166. Raising the issue of retrospectivity of the provisions of the
Competition Act, 2002, it has been contended that the
samecannot and does not have a retrospective application. The
provisions relating to anti-competitive agreements came into force
with effect from 20.05.2009 whereas the representation of AITDF
was dated 28.12.2007 and merely refers to price increases made
by tyre companies in the year 2006. AITDF did not make any
allegation during the investigation before the DG (I&R), the
MRTPCommission and the cause of action, if any, arose in 2006.
Subsequently, the investigation was transferred to the DG, CCI in
the year 2010. At the relevant time of filing of the representation
dated 28.12.2007, only the MRTP Act, 1969 was in existence. The
Competition Act cannot have a retrospective application in
relation to price increase in the year 2006.
167. Further, it has been submitted that the report fails to allege
much less establish an ‘agreement’ between J K Tyre and its
competitors, which is a condition precedent for a price cartel.
Reference has been made to the decision of the Supreme Court in
the case of Union of India v. Hindustan Development Corporation,
(1993) 3 SCC 499 at 531 para 14 to contend that a mere offering
56
of a lower price by itself, though appears to be predatory, cannot
be a factor for inferring formation of a cartel unless an agreement
amounting to conspiracy is also proved. Ithas been submitted
that the report fails to show that J K Tyre had entered into an
agreement with its competitors to limit or control the production,
distribution, sale or price of goods. It has also been pointed out
that the representation of AITDF does not refer to the same.
168. The economic principles of price parallelism as relied by the
DG have been disputed and denied by J K Tyre. Referring to the
finding in the report at page 24 holding that there is marginal
difference in the net dealer price of all companies except Apollo, it
is argued that the same demolishes the case of price parallelism.
It is alleged that the DG appeared to be relying on surmises and
conjectures and perceptions about tyre industry rather than on
facts and data furnished by J K Tyre during the course of
investigation. Alternatively, it is argued that the marginal
difference in the net dealer price of different tyre companies and a
gap with the price of Apollo Tyres would explode the myth of
cartel.
169. It has been contended that an allegation of a cartel is an
allegation of improper conduct or serious misconduct which
cannot be made in a vague or general manner based on an
impression or perception. An allegation of improper conduct has
to be laid down with material facts and material particulars.
There has to be clarity and certainty and accuracy about the
material facts and material particulars in the information petition
to show how a charge of cartel is made out. In the absence of any
material facts or particulars constituting a cartel, the same
cannot be regarded as a valid and proper allegation of cartel,
which needs to be answered by J K Tyre.
170. It has been strenuouslycontendedthat price parallelism by
itself cannot amount to a price cartel. To support the plea,
57
reference has been made to the decisions of the MRTP
Commission in the cases of RRTA v. ACCI Bayer (1993) 1 CTJ 7et
al where it has been held that price parallelism does not amount
to cartel. Without prejudice to the above legal proposition, J K
Tyre denied any allegation of price parallelism or cartel, as
alleged or at all.
171. Detailed parawise comments have also given by J K Tyre.
172. Referring to the price analysis carried by the DG, which has
been further subdivided into price structure and price movement,
it has been stated that the same is incomplete and it has been
averred that it is incorrect to suggest that the cost of natural
rubber and excise duty would constitute the major component
affecting price of tyres. It has been contended that the DG has
wrongly held that during the investigation period excise duty has
shown a downward trend. It is argued that excise duty has, in
fact, increased from 8% to 10% with effect from 01.03.2010 and
therefore it is incorrect to suggest that excise duty has shown a
downtrend as observed by the DG. It is the case of J K Tyre that
it had passed on more than the entire reduction of excise duty
from March, 2008 to March, 2009.The finding of the DG that
reduction in the excise duty was not passed on by J K
Tyrehasbeendenied. It has been submitted that the aforesaid
finding of the DG demonstrated a complete lack of understanding
of the tyre trade. The present investigation relates to the
purported information filed by AITDF purporting to act on behalf
of tyre dealers. J K Tyre sells its products on a principal to
principal basis to tyre dealers who in turn sell the products to the
truck owners or customers. There is no privity of contract
between the J K Tyre and the truck owners or customers.
Moreover, J K Tyre issues a Price List which inter alia contains
the Net Dealer Price (NDP) and the maximum price which is the
maximum recommended price. J K Tyreis not in a position to
ensure that the tyre dealers in fact pass on the benefit of
reduction in excise duty to the truck owners/consumers.
58
Grievance has also been made the DG has wrongly equated the
tyre dealers with consumers. It has been stated that the tyre
dealers are in fact resellers of tyres and do not actually use or
consume the tyres. This demonstrates that the DG has failed to
take into account the fact that dealings between J K Tyreand the
tyre dealers are on a principal to principal basis and the tyre
dealers in turn sell the products to the truck owners/ customers.
173. It has been alleged that the DG’s report is riddled with
inconsistencies and contradictions, which throw a serious doubt
regarding the correctness of the figures mentioned in the report.
Reference has been made to the analysis of natural rubber prices
by the DG in this regard.
174. It has been pointed out that there are several raw materials
used in the manufacture of a tyre apart from natural rubber. The
approach of the DG in referring to only natural rubber out of the
several raw materials viz. Nylon Tyre Cord, Carbon Black,
Beadwireetc.used in the manufacture of tyres demonstrates lack
of understanding of the process of manufacture of tyres. The
patently erroneous approach based on a rough and ready
assessment without taking into account the cost of all the raw
materials used in the manufacture of the tyre has been objected
to by J K Tyre. It has been, however, agreed by J K Tyre that the
natural rubber cost is a major contributor to the cost of
production but it is not the only factor. Thus, it is argued that
the change in cost of production is never exactly same as that of
change in natural rubber prices.
175. Exception has been taken to the finding in the report that
no satisfactory explanation was given to the increase in cost of
production despite substantial reduction in price of natural
rubber. It has been argued that the weighted average price of
natural rubber furnished by J K Tyreshowed that there was an
increase in prices from 2009-2010. Thus, the finding itself has
59
been described aspatently wrong since the report failed to
consider the data furnished by J K Tyre which demolishes the
finding given in the report. Further, it has been submitted that
the DG has not asked for any explanation from J K Tyrein the
probe letters sent in this regard.
176. With regard to the finding that tyre companies have been
inflating some miscellaneous expenses into the cost of production
to reduce their net profit margins, the same has been strongly
disputed by J K Tyre. It has been pointed out that J K Tyreis a
listed public limited company and its accounts are audited by
Statutory Auditors who are appointed by the shareholders. The
audited results are circulated to around 30,000 shareholders of
J K Tyreand the same are approved in the annual general
meeting.
177. It has been submitted by J K Tyrethat it produces bias and
radial tyres of different categories in different sizes. Asthe
investigation was confined to only one size of truck tyre (LUG),
the reference to the total production of all tyres for all categories
and all sizes as a basis of comparison clearly amounted to a
comparison between incomparable. The DG has deliberately tried
to compare the total production of all tyres with the Net Dealer
Price of one particular size of tyre of J K Tyrei.e. 1000.20 16 JTK
LUG.
178. It has been contended that the chart showing the Net Dealer
Price (weighted average) for 5 LUG Tyres of 5 companies does not
disclose any price parallelism, as alleged or at all. The difference
between the highest price and the lowest price varies
considerably both in actual amount as well as in terms of
percentage. It has been pointed out by J K Tyrethat it was giving
discounts to its dealers during the aforesaid period and the Net
Dealer Price is not the effective price at which the tyres are
supplied to the dealers. It has also been added that the dealer
margin which is the difference between the maximum price and
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the selling price in respect of the tyre under investigation
continues to remain very high and ranges from 10.2% to 16.2%
from 01.04.2002 till date. Based on this, it is contended that it
demolishes the case for any alleged grievance made by AITDF
purportedly on behalf of tyre dealers relating to price increases
affected by J K Tyre, which has no bearing or impact on the
margin of the dealers whatsoever.
179. It has been reiterated that the price increases are based on
market factors including changes in cost of production to leave a
reasonable margin of profits and return on investment.
180. It has been argued that the chart in the report showing
capacity utilization movement related to all tyres whereas the
present investigation was confined to one particular truck tyre. It
has been pointed out that the said chart fails to take into account
that the domestic availability of truck tyres of J K Tyrehad, in
fact, increased during the period.
181. Similarly, objection has been taken to the fact that cost of
sales, sales realization and the difference between the two have
been taken from all truck tyres of different sizes both bias and
radial whereas the investigation was confined to only one truck
tyre (bias) i.e. 1000.20 16 JTK LUG Tyre.
182. The approach of the DG in drawing a conclusion based on
the profit of a single year i.e. 2009-2010 insofar as J K Tyre is
concerned has also been faulted.It has been alleged that the DG
failed to take into account the profit for the previous years which
was less than 1% except in 2006-2007.
183. With reference to market share analysis, it has been pointed
out that the said data is based on total production figures of
truck tyres. The said data fails to take into account export figures
61
which have to be deducted from the total production figures to
show the actual domestic tyre availability and the consequent
market share. It is sought to be clarified that for the year 2009-
2010, there was an illegal strike in the factory of J K Tyre. It is
stated that the changes in the market share figures from 2005-
2010 show that there is intense competition in the tyre market.
184. It has been conceded share of production of top 5
companies is over 95% but it is sought to be explained by arguing
that the same is the scenario globally where top 10 companies
command over 80% of the market supplies.
185. It has been submitted that there is no restriction on the
entries of new players from the domestic as well as international
markets but industry has not remained very attractive due to
very low return on investments.
186. Lastly, it is urged that J K Tyreis a member of ATMA and
does in fact attend meetings of ATMA held on different dates to
discuss common issues faced by the tyre industry. With regard to
the allegation of ‘Low Cost Tyres Strategy’ in the report, it is
denied that J K Tyreasa member of ATMA adopted the alleged
strategy of launching low price tyres. It has been averred that J K
Tyreis following its unique marketing strategies to sell its
products in a highly competitive market. Similarly, allegation of
‘collectively blacklisting the importers’has been denied as wholly
misconceived and incorrect.
187. In view of the above submissions, J K Tyre has prayed to
the Commission to reject the report of the DG and to close the
proceedings.
Reply of Kesoram Industries Limited (Birla Tyres)
62
188. Birla Tyres has filed its reply/ objection to the report of the
DG and written submissions/ additional affidavit in reply/
objections. At the outset, it has been pointed out there is a
serious jurisdictional error committed by the DG to proceed with
the investigation in a transferred case under section 66(6) of the
Actby applying new standard in respect of conduct and practices
which happened prior to coming into effect of the Act i.e. on or
before 20.05.2009, the date when the Act came on the statute
book and more particularly, when there is no specific
assertion/allegation in the complaint or in the term of reference
order of Commission dated 22.06.2010 that there is a
continuance of practice by the noticee as forbidden under the
Act. Thus, the entire assumption of jurisdiction by the DGto test
the conduct and/or practices of the noticee companies on the
basis of the standards set by the new law for a period prior to its
date of implementation is faulty and erroneous.
189. It has been further contended that the DG’s report has
proceeded on wrong, erroneous and faulty premise bylimiting and
restricting investigation to truck and bus tyres(bias lug tyres) of
different make and specifications without clearly setting out the
reasons and/or justification for doing so.
190. It has been submitted that in order to arrive at a conclusion
as to whether there is any formation of ‘cartel’ as defined under
section 2(c) of the Act, there has to be a clear finding on the
existence of the ‘agreement’ as defined section 2(b) of the Act.
Although, the ‘agreement’ as defined under section 2(b) is a wide
and inclusive definition which not only includes formal written
agreement which is enforceable in law but also informal
‘understanding’ and ‘arrangement’ in the widest possible
meaning, yet no material evidence was cited by the DG in its
report about the existence of any agreement as defined. Thus, it
is argued that based on the material available on record, the DG
has not been able to come to a conclusion or recorded any finding
of the existence of any ‘agreement’ as understood under section
63
2(b) of the Act. It is further submitted that when the direct proof
is not available about the existence of the ‘agreement’, the
circumstantial evidence may form a basis of a reasonable
inference about the existence of such agreement but the DG has
also failed to produce any conclusive proof or establish the
existence of the circumstantial factors from where the easy
inference can be drawn as to existence of the agreement. It is
alleged that in the present case, no evidence was produced or
relied upon by the DG which points to the collusive meeting of
minds of the domestic tyre manufacturers or which indicates
conspiracy of any sort to restrict free flow of goods or jacking up
the prices by creating artificial demands in the market to ward off
competition. The entire approach of the DG on the formation of
the opinion about the existence of cartelization has been
described as based on mere conjectures or surmises.
191. It has been pointed out that the DG in its report has
referred to the minutes of the meetings of ATMA to hold that it
acted as a platform for exchange and sharing of information
related to price, export and other related issues and therefore,
concluded that five major tyre manufacturing companies have
‘acted in concert’ in violation of the provisions of sections 3(3)(a)
and 3(3)(b) of the Act. This conclusion has been challenged as
totally faulty and erroneous because there is no minutes of ATMA
produced or brought on record to support the conclusion that
there is a meeting of minds of the different tyre manufacturers
determining the prices of the products to be sold in the market.
It has been submitted that the strategy to determine the prices of
the product is all guided and governed by market forces as there
is an intense competition amongst the tyre manufacturers. Mere
exchange of views and opinions and share of information relating
to common issues to the tyre industry cannot be termed as an
anti-competitive behavior until and unless a tacit understanding
or concerted action is proved to be found restricting competition.
In this connection, reliance was placed on the judgment of US
Supreme Court in Maple Floor Manufacturers’ Association
64
v.United States of America 268 US 563. The following passage has
been quoted in this regard:
“It is not, we think open to question that the dissemination
of pertinent information concerning any trade or business
tends to stabilize that trade or business and to produce
uniformity of price and trade practice. Exchange of price
quotations of market commodities tends to produce
uniformity of prices in the markets of the world. Knowledge
of the supplies of available merchandise tends to prevent
over production and to avoid economic disturbances
produced by business crisis resulting from over production.
But the natural effect of acquisition of wider and more
scientific knowledge of business conditions, on the minds of
the individuals engaged in commerce, and its consequent
effect in stabilizing production and price, can hardly be
deemed as restraint of commerce, or, if so, it cannot, we
think, be said to be an unreasonable restraint, or in any
respect unlawful”
(Emphasis added)
192. Further, it is averred that because of the wrong and
incorrect data selection and adoption of incorrect methodology in
comparing the prices of the products of different tyre
manufacturers, the result arrived at by DG on price parallelism is
faulty. It is stated that there is no lowest common denominator
based on which the price movement was examined or changes in
the price was recorded. No common platform was formulated to
measure the price movement of tyre or any specific time frame
was selected in comparing the price movement. Prices of the raw
materials as well as the finished products rise and fall either on
daily basis, monthly basis or yearly basis. In such a price
movement scenario, the movement of the price cannot be
examined and compared between the different manufacturers of
tyres without first bringing the data under one common platform.
Without doing so, it always runs the risk of doing a comparison
between non-comparable. There are no clear-cut measures
adopted to arrive at-i) Net dealer price; and ii)Net weightage
65
average. Each manufacturing unit has its own method of
adopting the net dealer price or net weightage average. No
common identifiable measure to compare the price was selected.
Pattern of price changes by the domestic tyre manufacturers with
respect to time was not examined properly. Finding recorded to
the effect that drop in the prices of rubber or the excise duty
reduction, benefit of which are stated to have not been passed on
to the consumers are also faulty as it has not analyzed properly
taking into account the time factor, rise and fall of prices of
procured prices of natural rubber both in domestic and
international markets, interface between manufacturer and
dealers and also the rise of input costs of other raw materials
required for tyre productions as indicated by the various tyre
manufacturers. All this has been done on the basis of ‘pick and
choose approach’ and in perfunctory manner which only
behooves of the nature of comparing oranges with apples. The
entire basis of the finding on price parallelism has been described
as faulty and erroneous.
193. Refuting charges of price parallelism, it has been contended
that assuming price parallelism exists then also adoption of
parallel business behavior in a highly competitive market
scenario does not mean anything. It may only give an indication
of price stabilization in the market. Reference has been made to
Alkali Manufacturers’ Association of India, In re RTPE No. 26 of
1984 Order dated 29.05.1985; Bell Atlantic Corporation v.Twomby
550 US 544 (2207); and Wood Pulp case of EU Commission. It
has been submitted that it can, at best, be considered as one of
the price stabilization factor but cannot be taken to have
established as an arrangement which would require something
more to justify that the anti-competitive practice exists in the
market. Reference has been made to American Tobacco Co. v.US
1946 (328) USS 781. It is argued thatan anti-competitive practice
is a course of conduct which has or is intended to have, or is
likely to have the effect of restricting, distorting or preventing
competition in any market. In the present case, it is argued that
the DG in its report merely indicated price parallelism as one
66
form of business behavior to show that there is a conspiracy at
work between the five domestic tyre manufacturers to fix the
price at a level which is independent of market forces. The effect
of price parallelism has been projected in a manner as an entry
barrier from the fact of anti-dumping investigation initiated at the
instance of the domestic tyre companies against foreign tyre
majors which has its origin in- China and Thailand. The DG did
not consider it necessary to investigate as to whether there is any
entry barrier or not. In fact,Michelin and Bridgestone which are
internationally renowned tyre manufactures are setting up their
productionplants in India with a high investment cost which was
not even noticed by the DG in its investigation. Thus, ‘working in
concert’ was made the only available option to attack the
domestic tyre manufacturers in formation of an association to
lodge an anti-dumping case against the Chinese and Thailand
tyre importers. Any law which statutorily required forming an
association in order to lodge a complaint under anti-dumping
proceeding cannot be considered to be anti-competitive behavior.
194. It has been submitted that the DG in its report referred to
price parallelism as a good measure of indicator that information
sharing has taken place between five domestic tyre
manufacturers. This reasoning has been impugned as faulty by
arguing that meresharing of information cannot be considered to
be anti-competitive behavior as it would be then going against the
freedom to form association, in the instant case-ATMA, which is a
constitutionally guaranteed right to form association under
Article 19(1)(c). Until and unless, it is proved with reasonable
certainty with material evidence that there is a conspiracy or
collusive design amongst the members of the association which
can be reflected in any form of agreement, as known in
competition law, to ward off competition, it cannot be said that
mere sharing of information is an anti-competitive practice.
195. Objection is also taken to the report of the DG by pointing
out various inconsistencies therein in so far as when it records
67
that the companies are not utilizing capacity in full thereby
limiting supply. It has been pointed out that in the case of Birla
Tyres capacity utilization has been always at its peak amongst all
domestic tyre manufacturers, which the DG itself has recorded in
its report which shows that capacity utilization is 97.67% in
2007-08 and 104.57% in 2009-10. The DG has failed to take
note of the production cost including various other
elements/factors. One of the main factors which the DG has
identified for anti-competitive activities by five domestic tyre
manufacturers is that the consumers are not benefited by the
reduction in the prices of the natural rubbers and excise duty.It
is alleged that it was not considered necessary and/ or essential
to note and record that there are other important input costs,
increase of which has the effect of cost increase of the products.
196. It has been further pointed out that the effect of increase in
price of petro based products has got an adverse effect on the
procurement prices of synthetic Rubber, Nylon Fibers, Carbon
Black etc. which are directly linked to crude oil prices.
Reply of M/s Ceat Limited
197. Ceat in its reply stated that the investigation report dated
25.05.2011 has failed to make out even a semblance of a case of
cartel against it. It has been pointed out that the report itself has
clearly and categorically held that there is a gap between the net
dealer price (weighted average) and the price of market leader
Apollo and that of other companies thereby rebutting the charge
of the cartel against the five tyre manufacturers. For this reason,
it is contended that the report is liable to be rejected and the
proceedings ought to be closed.
198. Objection is also taken on the ground that the provisions of
the Act cannot and does not have a retrospective application.
68
199. Further, it has been submitted that an ‘agreement’ between
competitors is a condition precedent to establish an allegation of
cartel. Reference has been made to the decision of the Supreme
Court in the case ofUnion of India v Hindustan Development
Corporation, (1993) 3 SCC 499 at 531 para 14 to contend that a
mere offering of a lower price itself, though appears to be
predatory, cannot be a factor for inferring formation of a cartel
unless an agreement amounting to conspiracy is also proved. The
investigation report fails to show that there was an ‘agreement’
between the tyre manufacturers. Thus, it is urged that the
proceedings ought to be disclosed.
200. It is the case of Ceat that once an ‘agreement’ is found
amongst players in the same business thereafter the investigation
shall follow to ascertain causation of appreciable adverse effect
on competition in India in terms of the statutory factors laid
down under section 19(3) of the Act. It is alleged that this has not
been done in the report.
201. It is contended that the findings based on ‘price parallelism’,
appear to be in an effort to somehow pin down Ceat when no
action in concert was established. It has been pointed out that
the DG has held that the net dealer price (weighted average) of
Apollo, being the price and market leader for truck/bus tyres,
was much higher than the net dealer price (weighted average) of
the other four tyre companies including Ceat. Further, while
disputing the methodology adopted by the DG and while
affirming that even the net dealer prices (weighted average) of the
other four tyre manufacturers were different and distinct from
each other, the question of price parallelism much less cartel
cannot and does not arise. The participation by tyre companies in
meetings of ATMA is not indicative of cartel because unless the
meetings and/or concerted action categorically indicates that the
participating companies have decided price fixation of tyres and
implemented the same in letter and spirit, the minutes of the
69
meeting of ATMA cannot conclude triggering sections 3(3)(a) and
3(3)(b) of the Act.
202. It is averred that the so called ‘Price Parallelism’ as
highlighted by the DG in its investigation report (which is not
made out) does not substantiate existence of an agreement
between Ceatand other tyre manufacturers.
203. Giving background of the present investigation which was
commenced on the basis of the letter/representation dated
28.12.2007 from AIDTF to the Ministry of Corporate Affairs, it
has been contended that the main grievances of AIDTF relate to
(i) levy of anti-dumping duties on imported truck/bus tyres both
bias and radial, from China and (ii) tyre manufacturers not
passing the benefit of excise duty reduction to tyre users.
204. It has been pointed out that the report has failed to consider
that both the above grievances raised by AIDTF fall outside the
ambit and scope of the MRTP Act and the Competition Act and on
this ground alone, the investigation ought to be closed. It has
been further submitted that in the absence of any particulars of
facts or period for the alleged cartel in the representation, the
investigation report has erroneously proceeded in the absence of
a valid allegation of cartel supported by particulars and the
findings contained therein are clearly contrary to law and the
report ought not be entertained and the proceedings ought to be
closed.
205. Reference has been made to the contentions raised by
AITDF before the DA, which include the contention that there is
cut-throat competition between the domestic producers. This
submission made by AITDF before the DA would demolish any
allegation of cartel inferred from the representation and the
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question of entertaining the investigation report cannot and does
not arise.
206. Ceat has also accused AITDF guilty of suppression of facts
and forum shopping. It is averred that the information is made by
AITDF whose credentials of having any locus standi as an apex
body representing the manufacturers and consumers is a
questionable one.
207. It has been asserted that on a plain reading of the
information, it is evident that the angst of AITDF is directed
against the application filed by tyre companies through their
association seeking imposition of anti-dumping duty by the DA.
208. It has been further submitted that the application of the
tyre companies represented by ATMA merely petitioned the DA,
duly constituted under the law alleging dumping of tyres by
foreign exporters against the norms spelt out under the relevant
statuteand the rules framed thereunder.
209. It has been argued that the action taken by Ceatis in due
process of law and the orders passed are by an authority
constituted under the law.
210. Further, challenge is made to the findings of the report by
arguing that the DG has failed to disclose in the report the basis
on which he has decided to compare the tyres under investigation
of the tyre manufacturers including Ceat. It has been submitted
that there are a number of tyre sizes which are substitutable for
and comparable with the tyres under investigation. It is alleged
that the DG has proceeded to investigate a few selected tyre sizes
without investigating the comparable tyre sizes of all tyres
manufacturers.
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211. It is the case of Ceat that it has, in fact, passed on the
benefit of excise duty reduction to the dealers. This is stated to be
evident from the price list issued by it. Without prejudice, it is
also argued that no notification or statutory directive was issued
to pass on such benefits to the consumers. Grievance has also
made to the reliance of the reports of the Tariff Commission of
the years 1985 and 1988 by the DG which do not relate to or
have nexus to the period of investigation from the years 2005-
2010.
212. It has been further averred that the DG has wrongly
concluded that the price of natural rubber has increased in 2008
but has fallen in 2009 and again increased in 2010. In fact, it has
been submitted thatthe price has increased from 2005 to 2008
and again risen sharply in 2010. It has been alleged that there
are contradictory figures for prices of natural rubber (weighted
average) in the investigation report.Further, the DG has failed to
disclose on what basis he has arrived at the figures relating to
natural rubber prices (weighted average).It is further stated that
the conclusion arrived at by the DG is totally flawed as he has
failed to consider the wide range of variation in the prices of
natural rubber during the investigation period.
213. Alluding to the finding of the DG that the net dealer prices
(weighted average) of the tyres under comparison of the five tyre
companies were more or less the same with marginal difference
except Apollo tyre, it has been vehemently contended that the
same is clearly erroneous. The net dealer pricewasarrived at on a
simple average basis. Further, the net dealer price of the four tyre
manufacturers is not more or less the same. It has been
contended that the net dealer price of Ceat is distinct from the
net dealer price of other tyre companies and consequentlythe
finding by the DG of price parallelism is not established.
214. Referring to the findings relating to price parallelism, it has
been contended that the same were based on the basis of
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theeconomic analysis that price parallelism existed amongst tyre
companies which is a good measure/ indicator to show that some
kind of information sharing in price had taken place amongst
them. It has been submitted that this finding is patently wrong
and strongly denied. The very basis for the economic analysis by
the DG is faulty and illogical and consequently no such inference
of price parallelism or information sharing in price can be drawn
therefrom. Any allegation of price cartelization cannot be viewed
theoretically but has to necessarily be seen in the constellation of
economic facts relating to the tyre industry. The tyre dealers are
not only dealing with Ceat but also with other tyre companies.
Fierce and intense competition is a feature of the tyre trade. This
has been admitted by AITDF in submissions made before the DA.
The fierce and intense competition between Ceat and other tyre
manufacturers can be demonstrated from the discounts given to
the tyre dealers both on the invoice as well as subsequently by
way of credit notes. This shows the net sales realization made by
the tyre companies including Ceat from the tyre dealers. Ceathas
given discounts to tyre dealers in the range of 5% to 7% during
the period of investigation. Ceat decides on the discounts based
on several factors including overall demand-supply situation, the
desired product positioning, market share, business carried out
by dealeretc. The giving of product discounts by Ceat and other
manufacturers is clearly a weapon of competition which results
in promotion of inter-brand competition in the tyre trade.
215. It has been submitted that in an allegation of cartel, the
condition precedent to pin down Ceat shall have to be existence
of ‘agreement including an action in concert’. In the absence of
existence of an agreement among the tyre manufacturers, the
other issues as highlighted by the DG in investigation report
seem an academic exercise not relatable to the facts in issue. It
has been submitted that the investigation report indicated
discussions by Ceat and other tyre manufacturers at ATMA about
OEM prices being un-remunerative. It has been further
submitted that OEM market is a monopsony and is dominated by
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two major companies i.e. M/s Tata Motors Ltd. and M/s Ashok
Leyland Ltd. In the OEM market, which is distinct and different
from the replacement market, the two OEM bulk buyers are in a
position to dictate the prices to the tyre manufacturers including
Ceat after floating of tender, submission of price quotations,
period of price negotiations and entering into contracts. It has
been pointed out that the prices in the OEM market dictated by
OEM buyers are much lower than the prices prevailing in the
replacement market. In the replacement market, Ceat sells the
product to the tyre dealers at the net dealer price and may also
offer product discounts. Since the dealers are also dealing in
competing products of other tyre manufacturers, Ceat in order to
meet the inter-brand competition in the tyre industry gives
product discounts to the tyre dealers.
216. Ceat has referred to the findings of the DG to the effect that
the actual production of domestic tyre companies has
increasedexcept during the year 2008-09 when there was a
decline of 3% - 20% in actual production of domestic tyre
companies and that corresponding decline in net dealer price was
only 3-5% which implied that companies have not reduced the
net dealer price in proportion to actual production. Challenging
the finding, Ceat has submitted that the rationale advanced by
the DG of production vis-à-vis net dealer price was not
understood. It is stated that when production is reduced owing to
diverse reasons, the cost of production will go up owing to the
fixed cost and expenses. Hence, it is argued that lower
production translates to higher cost.
217. It has been further submitted that the net dealer price is
determined by cost of production, economic factors of demand
and supply, the product under consideration, the competition vis-
a-vis the particular brand and acceptability in the market, tariff
increases etc. Hence, the co-relation between the production
capacity and net dealer price is misplaced.
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218. It has been clarified that the reduction in the production for
the years 2008-2009 of Ceat was on account of losses incurred
and recessionary trend, which was a global phenomenon and not
limited to India. Ceat was constrained to stop production at its
manufacturing units accounting for a loss of 5% in production.
The increase in raw material cost with low sales resulted in
negative results. In any event, it has been submitted that the
production of truck tyres of Ceat had gone down in 2007-08 by
4% and in 2008-09 by 9.4% and consequently, the conclusion
arrived at by the DG that the production of domestic tyre
companies had increased except in 2009, would not hold good for
the Ceat.
219. Referring to the capacity utilization analysis, it has been
submitted that the concept of full capacity is an idealistic notion.
The capacity utilization is determined by the market trends of
demand supply and movement of the product. The products
manufactured by the tyre manufacturers are easily available off
the shelf. Hence, the lower capacity realization is not with the
intent to lower supplies as alleged. It has been pointed out that
the report categorically states that the actual production of the
tyre companies had increased (except for the year 2008-09) and
hence the allegation of limiting supplies is in total contradiction
to the assumption of limiting supplies.
220. Alternatively, it has been submitted that there are a number
of factors which govern the capacity utilization by thetyre
companies such as expansion of capacity, demand supply gap,
preventive and breakdown maintenance; change of mould on
account of number of SKUs (Stock Keeping Unit) produced by a
tyre manufacturer etc.
221. Pointing to the findings of the DG as regards CEAT that it
has been able to reduce the negative margin from Rs 802 to Rs
216 in the year 2009-10, and that the cost of sales shows
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increasing trend year after year and there has been sharp
increase during 2008-09 in almost all companies which could be
due to increase in the price of natural rubber. Theconclusion
arrived at is that it implied that the companies have the motive of
making profit and hence have been able to earn positive margins
in most of the period in 5 years.
222. It has been argued that the reasoning of the DG is
misplaced. It has been submitted CEAT is concerned for its
stakeholders and therefore, is in the tyre business to earn
reasonable profits. This cannot by any stretch of imagination be
construed as anything but healthy business practice. It is argued
that the net profits/ net sales ratio of Ceat cannot be said to be
‘unreasonable’.
223. It has been further alleged that the DG has conducted the
present investigation in an incomplete manner without taking
into account all aspects of cost which includes the cost of other
raw materials and overheads, which have to necessarily be taken
into account for arriving at the cost of production. It has been
stated that while natural rubber is one of the important
components of a tyre manufacturing process, it accounts for
around 40% to 43% only of the total cost of the tyre. The balance
of 57% to 60% of the raw materials consists of synthetic rubber,
carbon black, nylon fabrics, chemicals and other raw material. It
has been pointed out that the base material of these raw
materials is crude oil. It is averred that the cost of petro based
raw materials such as synthetic rubber, carbon black, Nylon
Fabrics etc. is impacted by rise in crude costs, and also the
exchange rate which in turn has a direct impact on the cost of
production of Ceat. It has been specifically pointed out that the
additional impact which Ceat has to bear and which no other tyre
company bears, is the levy of octroi duty of 2.5% to 5% on all raw
material/ consumables/ semi-finished product in the State of
Maharashtra. This puts Ceat at a disadvantage in terms of its
competitors.
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224. It has been submitted that the wages cost of Ceat has
always been high due to location of its both the plants in the
State of Maharashtra. Additionally, it has been pointed out that
the Dearness Allowance Index on an average has gone up from
3122 in 2005 to 4558 in 2010 i.e. increase of 46% over the period
under investigation. The increase in dearness allowance along
with the impact of long term settlement done by Ceatduring2009-
10 has significantly increased the overall wages cost during the
investigation period.
225. It is the case of Ceat that it has to incur heavy repairs and
maintenance cost because of the age of its two plants which are
30-35 years old. Consequently, it also has heavy burden of fixed
cost on the cost of production on account of lower productivity of
its said two aging plants.
226. CEAT denied in its reply that there was any significant
increase in margins from 2006 to 2010.
227. It has been pointed out that the DG proceeded to observe
and conclude that all companies have been operating on high
margins barring some exceptions. This statement of the DG has
been described as inherently contradictory as far as Ceat is
concerned.
228. It has been submitted that the DG wrongly presumed that
Ceat has direct dealings with the end consumers and is in a
position to pass on the benefit to the end consumers. During
investigation period, Ceat had clearly stated that it deals with
tyre dealers on a principal to principal basis and the tyre dealers
in turn sell the products to the end consumers. The margin of the
dealers is not known to Ceat although the dealer is at liberty to
sell at a price below the MRP. The only customers that
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Ceatdirectly deals with are the OEMs and Fleet owners including
the State Transport Undertakings.
229. Referring to market share analysis, Ceat has pointed out
that the DG found no major change in the market share during
2005-2010 (reduced by 1% in 2009-2010),it found five
manufacturers accounting for 95% of market share showing high
concentration and implying high dependence of OEMs/
replacement market on five tyremanufacturers.These conclusions
have been described as incorrect by Ceat.
230. It has been pointed out that the tyre industry is a capital
intensive industry. However, it has been stated that there are no
barriers to the entry of new players in the market other than the
investment cost. The industry has seen international companies
such as Bridgestone and Michelin which have entered the
market. Bridgestonehas a factory in the state of Madhya
Pradeshwhich produces passenger car radials. Michelin is
importing approximately 15-20000 TBR every month for sale.
They have also announced their plans to set up a production
facility in Tamil Nadu. Apart from these two global tyre majors,
other leading players like Yokohama (in advanced stage of
purchasing the land in the State of Gujarat for setting up a new
plant), KumhoandHankooj, among others, are also selling PCR in
the Indian market through distributors. They have been present
in the Indian market for many years. Recently even Continental
Tyres has announced its entry into the Indian market.
231. It has been highlighted that the report of the Centre for
International Trade (JNU report) itselfcategorically states that the
data base was too small to form any conclusions. Similarly, it is
contended that the data used in Tariff Commission reports
merely indicated a possible collusive price behavior but did not
conclude that there was one and rightly so, as there exists no
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cartel. Mere presumption on the basis of figures cannot form the
basis for impinging an allegation of cartel, asserts Ceat.
232. Summing up, Ceat has pointed out that the domestic tyre
manufacturers have never adopted a collective strategy to
produce low price tyres. Ceathasnot launched any low cost
truck/ bus tyres. Nevertheless, it is asserted that had it been
technically possible, Ceat would have been most interested to do
for its business interest. Ceatfiled anti-dumping petition before
the DA for the protective benefit it is entitled to under the
relevant laws of the country.Ceat has not black listed any of the
importer of Chinese tyres and it has never shared its cost data
with its competitors, neither for anti-dumping petition as the
same are confidential in nature and very sensitive in nature for
its business. It has been clarified that the same were submitted
to lawyer directly and not through ATMA.
233. Referring to the role played by ATMA, Ceat has submitted
that ATMA does not have any role to play in managing its affairs
as it has its independent marketing strategy, and is
independently competing with other tyre manufacturers and
takes its decisions independently including the fixation of prices.
Certain common issues faced by the tyre industry are discussed
at ATMA meetings, which are within the realm of the law,
submits Ceat. It has been fervently submitted that the allegation
of ‘close knit family’ is farfetched and is not borne by the facts
adduced.
234. In view of the submissions made above, it has been prayed
that Ceat has not indulged in any activity that falls within the
purview of section 3(a) and/or (b) of the Act and therefore the
present investigation report dated 25.05.2011 of the DG be
rejected and the proceedings closed with costs on AITDF and
name of Ceat be deleted from the cause title of the inquiry.
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Reply of M/s Michelin India Tyres Pvt. Ltd.
235. At the outset, Michelin has pointed out that the DG has
investigated only the relevant market of Truck-Bus (TB) tyres and
concluded that there exists a cartel amongst the top five domestic
tyre manufacturers, who are members of ATMA. The DG has
limited his findings only to the criteria of pricing factor in terms
of cost inputs and the fluctuation in prices of natural rubber. It
has been further stated that the data relied upon by the DG
clearly indicate that the five domestic manufactures have been
fixing output to retain their respective market shares. It has been
averred that in a period of five years from 2005-2010, the
production data of the five domestic manufacturers exhibit the
following trends:
(a) The five domestic manufacturers have increased
installed capacities during the period.
(b) The percentage of capacity utilization has decreased in
spite of large increase in capacity by two of the
manufacturers during the period.
(c) Each manufacturer’s production as a percentage of the
total production by these five domestic tyre manufacturers
has remained almost constant during this period.
236. Based on the above trends, it has been contended that there
can be no economic justification for such behavior. No profit-
maximizing firm will invest in increasing capacity which is not be
fully exploited over a period of five years. This behavior is against
the self-interest of the five domestic tyre manufacturers. The
rationale for this behavior can only be cartelization.
237. Michelin has given the details of the installed capacity of
each of the top five domestic tyre manufacturers over a period of
five years as follows:
Installed Capacity (In lakhs)
80
2005-06 2006-07 2007-08 2008-09 2009-10
Apollo 79 88 97 99 132
JK Tyre 63 76 87 88 91
MRF 32 34 33 34 36
Birla 12 13 15 14 14
Ceat 43 43 45 45 47
238. From the above, it is sought to be contended that in terms
of installed capacity, the growth for each of the players has been
uniform, barring one year 2009-10, when Apollo made a huge
increase (its installed capacity increased from 99 lakhs to 130
lakhs). It has also been pointed out that JK Tyre has also been
steadily increasing its capacity. Rest of them i.e. MRF, Birla and
Ceat showed gradual increase in their installed capacities as well.
239. Michelin has also given the production details of TB tyres by
the five domestic manufacturers as follows:
Production (In lakhs)
2005-06 2006-07 2007-08 2008-09 2009-10
Apollo 71 79 89 86 105
JK Tyre 64 70 75 75 79
MRF 24 27 27 27 32
Birla 11 12 14 11 14
Ceat 39 39 38 34 38
Total
Production
208 226 243 233 269
240. From the details, it has been pointed out that in terms of
market share the said players have captured almost 96% - 97%
of the market over the period of 2005-10.
241. Michelinhas also given a table below exhibiting the
production of each of the five major players (ignoring smaller
producers) as a percentage of the total production in the market,
which is a close proxy for their market shares. It has been stated
that in spite of a massive increase is installed capacity, Apollo
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continued with about the same level of production vis-à-vis its
four competitors. The same holds true for all the other four major
domestic manufacturers, submits Michelin.
Production in Percentage
2005-06 2006-07 2007-08 2008-09 2009-10
Apollo 34 35 37 37 39
JK Tyre 31 31 31 32 29
MRF 12 12 11 12 12
Birla 5 5 6 5 5
Ceat 19 17 16 15 14
242. From the above, it is sought to be evidenced that the five
major domestic manufacturers have maintained their relative
production levels during this five-year period.
243. It has also been submitted that even CESTAT in its order
has noted Designated Authority’s finding that despite growth in
demand, growth in production has declined. The relevant extract
has been reproduced to the following effect:
…..The capacity has increased from 26270 MTs to 37636
MTs and the production has increased from 18622 MTs to
27364 MTs and therefore the capacity utilization has also
increased from 70.89% to 72.71%. However, the DA has
noted that despite growth in demand growth in production
has declined.
244. From the above submissions, it is sought to be deduced by
Michelinthat (a) All the five major domestic TB tyre
manufacturers have added to their installed capacities over a
period of five years (2005-2010) and (b) There exists a parallelism
in terms of output amongst the players in question as is evident
from their production numbers as well as their respective shares
as against total production amongst themselves.
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245. It is urged that the maintenance of the relative position in
terms of production cannot be explained by interdependence in
view of the difference in the installed capacities together with the
difference in increase in their installed capacities. This is a clear
pointer of an agreement between the manufacturers since
without such a consensus, it is impossible for players to reach
production parallelism, especially when all of them have
increased their capacity every year.
246. It has been submitted that explicit collusion occurs where
undertakings agree, collectively, to exploit their joint economic
power and to improve their profitability by raising prices,
restricting output, sharing markets or rigging bids. Successful
cartels raise the joint profits of all the firms in the industry,
maintain the parties’ respective position on the market and
achieve pricing stability or an increase in prices. They, thus,
enable the member firms to enjoy market power and profits over
and beyond what would otherwise result and to reproduce
artificially the market outcomes and welfare loss arising on a
monopolized market. Hardcore cartel activity is most likely to be
successful in oligopolistic markets i.e.markets having only a
small number of producers or sellers.
247. Michelinhas also referred to the various economic principles
underlying the behavior of members of the cartel. Reference has
also been made to the proceedings before DA and CESTAT. As a
detailed reference has already been made to these proceedings, it
is not necessary to reproduce the same herein again.
248. Referring to a study carried by OECD, it is sought to be
contended that anti-dumping measures can be abused for
protectionist purposes. It is the case of Michelin that the way
anti-dumping laws are structured, domestic producers can enlist
the help of the Government to prevent foreign competition even
when there has been no dumping. Michelin submits that the law
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allows producers to unethically use anti-dumping measures to
batter the competition.
249. In view of the foregoing, Michelincontends that it can be
safely assumed that domestic tyres manufacturers have not only
tried to limit the quantity by fixing outputs but also by creating
hurdles on the path of tyre importers through concerted action in
initiating anti-dumping proceedings.
Reply of other parties
250. As noted earlier, on the request of counsel for M/s Modi
Tyres Company Pvt. Ltd. and M/s Bridgestone India Pvt. Ltd., the
Commission vide its order dated 03.11.2011 struck off their
names from the array of parties and as such it is not necessary to
record their submissions in the order.
251. M/s Goodyear India Limited also filed its brief reply stating
that the report of the DG did not name it as a contravening party
and as such its name should be deleted from the proceedings and
the array of parties. It has been submitted that no finding has
been recorded against Goodyear by the DG in the report. It has
also been pointed out that no investigation was conducted
against it by the DG (I&R), MRTP Commission on the basis of
information supplied by AITDF in the year 2008. It has also been
highlighted that even the informant AITDF did not refer Goodyear
in the information. It is however admitted that Goodyear is
member of ATMA and does, in fact, attend meetings of ATMA held
on different dates to discuss common issue faced by the tyre
industry. In the result, it has been prayed that the name of
Goodyear be deleted and removed from the present proceedings.
252. M/s TVS Srichakra has filed a letter stating that it is not
manufacturing any truck or car tyre from the beginning and it is
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involved in manufacturing 2-wheeler tyres and tubes and off-the-
road tyres mainly for exports.
253. None appeared on behalf of M/s Falcon Tyres Ltd. and M/s
Dunlop India Ltd. No appearance was also entered on behalf of
Directorate General of Anti-Dumping & Allied Duties.
254. In view of the foregoing and in the light of findings
recorded by the DG of contravention against J K Tyres, CEAT,
MRF, Apollo, Birla Tyres and ATMA, the Commission deems it
appropriate to examine the conduct of these parties.
255. The Commission has also heard the oral submissions of the
parties.Shri S P Singh, Convenor, AITDF made submissions on
behalf of AITDF. Shri K. Venugopal, Shri A N Haskar, Sr.
Advocates; ShriAdityaNarain, ShriManasChaudhuri, Ms.
PallaviShroff, Shri Harman Singh Sandhu, ShriPinakiAddy, Shri
Amitabh Kumar, ShriGautamShahi, Shri Ravi Sekhar Nair and
Ms. Nidhi Singh, Advocates made oral submissions for the
appearing parties.
Issues for determination
256. In view of the contentions raised by the parties and the
findings recorded by the DG, following issues arise for
determination:
(i) Whether the Commission has the jurisdiction to proceed
with the matter under the provisions of the Competition Act,
2002?
(ii) Whether the tyre manufacturers have contravened the
provisions of section 3 of the Act?
Determination of Issue No.1
85
Whether the Commission has the jurisdiction to proceed with
the matter under the provisions of the Competition Act,
2002?
257. The opposite parties have contended that present case arose
before the MRTP Commission from the complaint of the AITDF
dated 28.12.2007 referring to the alleged anti-competitive
practices of the tyre manufacturing companies, the DG had no
jurisdiction to extend the period of investigation beyond year
2007 and his report is liable to be rejected on this ground only. It
is also contended that the Act has no retrospective operation and
as such, the Commission does not have the jurisdiction to look
into the present matter.
258. It is true that the present inquiry was instituted with
reference to the allegations made in the year 2007. However, the
DG has examined the conduct of the Opposite Parties from year
2005-06 to 2009-10 and has found that alleged anticompetitive
conduct of the parties which started prior to coming into force
the relevant provisions of the Competition Act continued even
after the date when these provisions were notified i.e., May 20,
2009.No doubt the period of contravention of the provisions of
the Competition Act, 2002 has to be reckoned only from the date
of its enforcement but this does not imply that either the DG or
the Commission cannot examine the conduct of parties post
notification where the information/complaint was filed before the
MRTP Commission. The Commission, while passing order under
section 26(1) of the Act, did not specify any period for the reason
that at that stage it would not be desirable to curtail the period of
examination by the DG. As the proceedings before the
Commissionare inquisitorial in nature, it would not be
appropriate to restrain the DG from fully examining the
allegations of cartelization in the tyre industry. As such, it is
difficult to agree with the submissions made by the opposite
parties that the proceedings are vitiated on any of the grounds so
urged.
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259. Given this fact, the plea of the opposite parties that the DG
had no authority to examine their conduct for a period
subsequent to the alleged period of contravention has no force
and is liable to be rejected.
260. Further, the Commission is of opinion that the preliminary
objections taken by the opposite parties regarding jurisdiction of
the DG and/or the Commission are contrary to the scheme of the
Act and the legal position on this aspect is quite clear. In this
regard, it is also noted that Hon’ble High Court of Delhi in W.P.
(C) 6805/ 2010, Interglobe Aviation Ltd. v. Competition
Commission of India decided on 06.10.2010 has held on similar
issue that where the investigation by the DGIR, MRTPC remained
incomplete and the matter did not crystallize into a ‘case’ before
the MRTPC, it was not incumbent on the DGIR, MRTPC to
transfer the case to the Competition Appellate Tribunal and not
to the Commission. This view was reiterated by the Hon’ble High
Court of Delhi in W.P. (C) 7766 / 2010, Gujarat Guardian Ltd. v.
Competition Commission of India decided on 23.11.2010. In this
case, the petitioner advanced the argument that as the matter
was pending before DGIR, MRTPC the case ought to have been
transferred to Competition Appellate Tribunal and not to the
Commission. It was also contended that the Commission had no
power to pass order under section 26(1) of the Act in such matter
and that the Commission had to proceed under the provisions of
the MRTP Act. The Delhi High Court rejected the arguments
raised by the petitioner and held that “This Court finds that since
the investigation was incomplete the matter was rightly
transferred to the CCI. On further consideration of the material
on record the CCI formed a prima facie opinion to proceed under
Section 26(1) of the CA. This was not contrary to Section 66(6) of
the Competition Act, 2002. It is possible in the course of
investigation that the DG, CCI forms a prima facie opinion to
proceed under the provisions of the CA, 2002 itself. There is no
illegality per se in such action of the DG, CCI.”
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261. The Commission notes that in the present matter the DGIR,
MRTP Commission undertook the investigation which was still
pending when the MRTP Act, 1969 was repealed vide ordinance
dated 14.10.2009. As the investigation had not culminated into a
‘case’ the matter was rightly transferred to the Commission by
the DGIR, MRTPC invoking the provisions of section 66(6) of the
Act as the allegations involved were related to restrictive trade
practices. Even a plain reading of section 66(6) of the Act clearly
demonstrates that on receiving the matters where investigation
was pending, the Commission may order for conduct of the
investigation in the manner as it deems fit.
262. Furthermore, the Commission has not been conferred with
any power to adjudicate any matter invoking the provisions of
repealed MRTP, Act. This premise becomes clear when the
provisions of section 66(6) are contrasted with the provisions of
section 66(3) of the Act. Whereas the Competition Appellate
Tribunal has been specifically conferred power to adjudicate
cases pertaining to monopolistic and restrictive trade practices
pending before MRTP Commission in accordance with the
provisions of repealed MRTP Act under section 66(3) of the Act,
no such power has been given to the Commission under section
66(6) of the Act. In the backdrop of the provisions of the Act as
analysed above, the Commission finds that there is no illegality in
entertaining and examining the present case under the
Competition Act, 2002 in which the investigation was pending
before the DGIR, MRTPC before the MRTP Act was repealed.
263. In this connection, a reference may be made to the decision
of the Hon’ble High Court of Bombay in W.P. No. 1785/ 200,
Kingfisher Airlines Ltd. v. Competition Commission of India decided
on 31.03.2010 where it was held that though the Act is not
retrospective, it would cover all agreements covered by the Act
though entered into prior to the commencement of the Act but
sought to be acted upon now i.e. if the effect of the agreement
continues even after 20.5.2009.Thus, even in cases where the
alleged anti-competitive conduct was started before coming into
88
force of sections 3 and 4, the Commission has the jurisdiction to
look into such conduct if it continues even after the enforcement
of relevant provisions of the Act.
264. In the present case, practices of the parties alleged to be
anti-competitive have been found by the DG to be still continuing
and there is nothing on record to contradict the same.
Accordingly, the Commission is of the considered view that in the
light of legal position as discussed above there is absolutely no
illegality in the proceedings in the present case and the
arguments and the contentions of the parties on this aspect have
no force.
265. The Commission notes that in the present case, the
investigations were initiated on the basis of complaint of AITDF
dated 28.12. 2007. As the investigations under the MRTP Act
could not be completed, the matter was transferred to the
Commission in terms of the provisions of section 66 of the Act. In
the meantime, the provisions relating to anti-competitive
agreements and abuse of dominant position of the Act were
notified, the conduct of the parties has been examined by the
Commission post such notification of the provisions.
266. It may also be noted that though ATMA was not specifically
mentioned in the order passed by the Commission under section
26(1) of the Act, the DG while investigating the matter has also
taken into consideration the role andconductofATMA. The DG
and the Commission have given ample opportunity to the ATMA
to explain its conduct. Therefore, no prejudice can be said to
have been caused to ATMA on this count.
267. It is also pertinent to note that the DG examined the
conduct of the parties in the present case spanning from year
2005 to 2010 for delineating the market construct and
conducting competitive analysis of tyre industry in a holistic
perspective, though as noted above for the purpose of
determining the period of contraventiontheconduct of the parties
89
can only be taken for a period starting from 20.05.2009 i.e. the
date on which the relevant provision of the Competition Act, 2002
were notified. As has been seen above, the Commission does not
have power to adjudicate any matter invoking the provisions of
the repealed MRTP Act, therefore, in the present matter the
relevant period for the purposes of determining the contravention
of the parties under inquiry will commence only from the date of
enforcement of section 3 of the Act.
268. In view of the aforesaid and after dealing with
thejurisdictionalissues, the Commission proceeds to deal with the
substantive issue arising for determination in the present case.
Issue No.2
Whether the tyre manufacturers have contravened the
provisions of section 3 of the Act?
269. Before examining the issue, it would be appropriate to delve
briefly on the evolution and background to understand market
construct and structure of tyre industry.
Evolution and Background
A brief glimpse of the evolution of the tyre industry presents
interesting insights into the sector which has grown from a
purely importing industry to domestic manufacturing capability
over a century shaped by the policy regimes prevalent at different
times in the country, pre and post-independent India. The form of
development which evolved from foreign dominated companies to
Indian companies displayed characteristics of limited players
where technological and high fixed capital cost tended to restrict
the number of players reflected in the prevailing structure of the
industry. The evolution also shows the close links of this industry
with foreign players while continuous threat of imports that have
been reckoned by domestic companies reflective of the
competitive constraints of a tradable commodity.
90
Structure of Tyre Industry
270. The Indian tyre manufacturers have grown to produce the
complete range of tyres used in automotive industry for trucks,
buses, passenger cars, jeeps, light trucks, tractors, two and three
wheeler vehicles in tandem with growth in and diversity of the
automotive/transport sector.
271. There are two categories of tyresviz. radial and non-radial.
The non-radial category is known as bias or diagonal or cross ply
tyres. The categorization is based on the load-inflation pressure
relationship prescribed by the Indian Standards.
272. Bias tyres are nowadays mostly used in buses and trucks
and the passenger cars have factory fitted radial tyre. Indian tyre
industry is predominantly a cross ply (or bias) segment which is
now moving towards radialization.
273. Growth of radial tyres in the car segment is enormous owing
to their direct use by the Original Equipment Manufacturers
(OEMs). However, in the bus and truck segment radialization is
limited and is still dependent on cross ply (bias) segment. Tyre
manufactures have a vast network of dealers, marketing agents
etc. which enables the consumers to have easy access even at far
flung areas. Tyre is used along with the tube which is then fitted
over the wheel rim. A rubber flap is used between the tube and
the wheel rim to prevent tube burst on account of friction. Tyre,
tube and flap are sold together as well as individually. With
technological advancement nowadays tubeless tyres are being
increasingly used by the automobile industry. The tyre
manufactures cater to the following major customer segments
either directly or indirectly through dealers/ marketing agents:
(i) Original Equipment Manufacturers (OEMs)
(ii) Replacement Market (aftermarket)
91
(iii) Export Segment
(iv) StateTransportUndertakings (STUs)
274. The OEMs comprise of automobile manufacturers who
source their tyre requirement directly from the tyre manufactures
in huge volume and hence are being dealt directly by the tyre
manufacturers through negotiations. In the replacement market,
tyre manufacturers sell the tyres through widespread dealer
distribution network either through exclusive dealers of the
companies or through multi company dealers. The tyre
companies are directly supplying to Government institutions and
to State Transport Undertakings (STUs) through the tender
system. The demand in the replacement market depends on the
level of economic activity, usage, age of the vehicle, quality of the
existing road infrastructure, overloading etc.
275. The tyre manufactures are also exporting tyres to different
countries through dealers in exporting countries. Some tyre
companies import tyres from foreign manufacturers or
collaborators for domestic sale in Indian market. These imported
tyres are then sold in Indian market along with the Indian tyres
through the dealers.
276. Having taken note of the way tyre industry has evolved and
its structure, the next step is to examine the present allegations
of cartelization in tyre industry. The first step is to understand
and bring out the structural factors which may be conducive for
cartelization and thereafter circumstantial/direct evidences can
be considered for arriving at a conclusion on the allegations.
Structural Factors
277. It is commonly known that even though cartelization can
occur in any industry, there are some industries in which it is
more likely,due to particular features of the industry or of the
92
product involved. Such characteristics make it easy forthefirmsof
the industry to control the market. The Commission is of the view
that the probability of cartelization gets higher if the following
structural factors are present in any product market:
Highly Concentrated Market
278. It appears from the report of the DG that the five domestic
tyre companies have consistently accounted for around 95% of
the market share of the total production implying a very high
concentration in the industry. This fact is also corroborated from
the information available on the website of ATMA. As few large
players control majority of the market in India, the market
becomes oligopolistic in nature. In an oligopoly (since there are
not many firms), there is a high degree of interdependence among
firms. Each firm’s price and output decision anticipate the
probable actions of other firms at any given time. Each of the firm
has to concern itself with the strategic choices of its competitor.
These strategic choices can be price, quantity or quality.
In a market which is oligopolistic in nature, it is more likely that
each market player is aware of the actions of the other and
influences each others’ decisions. No doubt, interdependence
between firms is an important characteristic of such a market
which would mean that each firm in such a market takes into
account the likely reactions of other firms while making
independent decisions particularly as regards prices and output.
Thougholigopolistic markets can lead to competitive outcomes,
the outcomes may not always be market driven but rather the
result of concerted effort or collusion. The interdependence
between firms can lead to collusion-both implicit as well as
explicit. Knowing that overt collusion is easily detected, firms
often collude in a manner which leads to non-competitive
outcomes resulting in higher prices than warranted by pure
interplay of market forces.
93
279. Thus, high concentration may provide a structural
reasoning for collusive action resulting in parallelism (price or
output), yet it is very important to differentiate between “rational”
conscious parallelism arising out of the interdependence of the
firms’ strategic choices and parallelism stemming frompurely
concerted action. Thus, inferring of cartels would require further
evidences. Economic theory has demonstrated convincingly that
“conscious parallelism”, is not uncommon in homogeneous
oligopolistic markets. Competing firms are bound to be conscious
of one another's activities in all phases, including marketing and
pricing. Aware of such outcomes especially where there is little
real difference in product the Commission is of the opinion that it
is quite probable that in many such instances, conscious
parallelism may be dictated solely by economic necessity.
Avoidance of price wars is a common instance where this takes
place.
Demand & Supply Conditions
280. A constant, predictable flow of demand from the
customersalso tends to increase the risk of collusion. The tyre
industry is cyclical and seasonal in nature. According to an ICRA
Report,
1
nearly 42% of tyre demand is dependent on automotive
production, which due to its cyclical and seasonal character is
quite predictable. In the present case, the tyre manufacturers
must have been aware of the fact that there would be a steady
flow of demand due to the rapid growth in automobile
industryparticularly in the year 2009-2010 as well as in
replacement market leading to some sort of predictability of
demand. However, on the other hand there is a persistent threat
to demand from retreaded tyres which are viewed as animportant
substitute for new tyres.As per ICRA Report, the price of
retreaded tyres is between 30-80% lower than the price of new
tyre. Around 40-50% of discarded car tyre and 60-80% of
1
ICRA Limited, was established in 1991, and was originally named Investment Information
and Credit Rating Agency of India Limited (IICRA India), is an Indian credit ratings agency
94
discarded truck tyres are suitable for retreading. The annual
retreading market is estimated at around 14-15 million. The
truck and bus segment accounts for around 58% of retreading
market.Thus, a flourishing retreading tyre market, in the
replacement segment brings some element of unpredictability in
demand.
281. On the supply side, the Commission notes that the industry
players lobbied hard for imposition of anti dumping duty to
restrict supply from imports and increase their market power, by
removing any threat from imports. However, what is important in
this context isto see how successful have the industry players
beento achieve the desired outcomes from such lobbying
practicesin restricting the supply of imported tyres. As per CMIE
2
data, the imports in terms of
3
volumes have shown an increasing
trend right from 2005-06 to 2010-11. The percentage of imports
to total tyre production has also been increasing throughout the
period except 2009-10, when there was a marginal fall and that
was also primarily due to sharp increase in tyre production.
Thus, it seems that imports remained a competitive threat even
with anti-dumping duty prevailingand the threat increased with
removal of duty leading to jump in imports in 2010-11. The
trends as obtained from CMIE database are as under:
Units 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
Total Tyre
Production
In 000’s 66031.59
74033.70
81103.03
82106.68
97607.71
119195.59
Total Tyre
imports from
the world
(Volume)
In 000’s 1466.06
2587.19
3333.76
4064.18
4767.01
8844.60
Total Tyre
imports as %
of Total
Production
In %age 2.22
3.49
4.11
4.95
4.88
7.42
2
Centre for Monitoring Indian Economy
95
Thus, the above analysis shows how the apparent concerted
efforts of the tyre manufacturers to restrict imports have not been
successful as imports have shown a secular upward trend and
imposed competitive constraints.
Homogeneous Product
282. The products manufactured by these companies are
homogenous in nature and hence substitutable. This structural
factor may help the manufacturers to collude than compete.
283. No significant Technological changes.
284. Over the years leading to the period under investigation
there has been no significant technological change in the
manufacturing of cross ply tyres used in Trucks and Buses.This
factor is further reinforced from the information furnished by
ATMA on its website wherein it has been shown that radialization
in Truck and Bus segment is merely 15% in comparison to 98%
in passenger cars.
285. However, it needs to be pointed out that the pace
ofradializationin the Truck and Bus Segment has been high in
the recent years, albeit from a low base.The import figures of
Truck and Bus Radials (TBRs) have gone up from 50 thousand
tyres in FY 2004-05 to 1127 thousand tyres in FY 2009-10. The
tyre manufacturers have also lined up large investments in TBR
facilities which also points to increasing radialization. The ICRA
Report estimates that around 60% of Industry CAPEXamounting
to Rs.17,500Crore would be made in TBR radializationsegment in
the period 2010-2013.
Dependence of Customers
286. OEMs procure tyres from domestic tyre manufacturers and
also import from various countries based on their requirement.
As the penetration of radial tyres in Truck and bus segment has
96
been pretty low it can be noticed that OEMs are dependent on the
supply of cross ply tyres from the domestic tyre
manufacturers.However, it is noted that the OEMs exert
substantial countervailing buying power also because of the fact
that the OEM demand constitutes around 26% for Commercial
Vehicle tyres and 44% of total demand for domestic tyre industry.
This fact has been reflected in submissions of various
manufacturers also.
287. As far as the replacement market is concerned, it has
already been noted that the retreading market provides an
alternative to consumers and a competitive constraint on tyre
manufacturers.
Entry Barriers
288. Indian tyre market is largely cross-ply oriented whereas
global tyre market is radial oriented. It has been seen that despite
market being highly concentrated and Truck and Bus segment
constituting a major share of demand in terms of value, no new
entry in the cross ply segment has taken place leaving the entire
market to the existing players.However these, significant entry
barriers arisedue to thehigh capital requirements to setup a tyre
manufacturing plant. As per ICRA Report, a plant with an annual
capacity of 1 million cross ply Truck and Bus Tyres cost around
Rs.6 billion.
Active Trade Association
289. Trade associations can be used as legitimate forum for
members of a business to promote standards, innovation and
competition. However, trade associations remain vulnerable to
stepping beyond the limits placed by competition law because, by
definition, they involve meetings, discussions and cooperation
amongst various-often virtually all-competitors in a particular
line of business. The Commission examined this aspect as trade
97
association can, as observed in other cases, be an active
facilitator for cartel behaviour.
290. Tyre manufacturing firms have an association under the
name Automotive Tyre Manufacturers’ Association (ATMA) as the
representative body of automotive tyre industry in India. All five
large tyre companies representing over 90% of production of tyres
in the country are its members.The Automotive Tyre
Manufacturers’ Association (“ATMA”) was set up in 1975, and is
registered under the Companies Act.The evidence gathered by the
DG has shown that they frequently meet at the platform of ATMA
to discuss and perhaps even share sensitive business
information. The Association also regularly publishes data on
production and export of various categories of tyres. Besides, the
Association prepares status notes on various subjects which are
of relevance to tyre industry, such as, Tyre Retreading Industry,
Regional Trade Agreements & Rules of Origin, Anti-Dumping, etc.
These facts are corroborated from the information available on
the website of ATMA. The information available there also
proclaims that with the guidance of the Managing Committee the
ATMA functions through various committees set up, consisting of
different disciplines, such as, Marketing, Export, Purchase (Raw
Material), Taxation, Technical etc. Thus, it is noticed that the
firms have an active trade association engaged in the above
activities.
291. Thus, it is seen that there are some factors which may be
conducive to cartelization but they may be diluted due to other
factors as has been pointed out in the above discussion. The fact
that market concentration is very high with entry barriersand the
product is homogenous, support cartel formation, buthigh
bargaining powers of OEMs due to the volumes, options to
replacement consumer to retread, increasing radialization,
imports effectively being cheaper even in the brief period of anti
dumping duty go against sustaining a cartel structure.
98
Aconclusive finding however, can only be made after considering
other evidences including circumstantial evidences.
Whether Agreement can be inferred from circumstantial
evidence?
292. A lot has been made by the opposite parties of the fact that
the DG has failed to gather any direct evidence to support his
findings. Reliance is also placed upon a decision of the
Commission in the case of NeerajMalhotrav. Deutsche Post Bank,
Case No. 05 of 2009 to contend that to establish a finding of
infringement under section 3(1) read with 3(3) of the Act, the
agreement must be established unequivocally.
293. In view of the provisions of the Act, as highlighted below, in
this respect, the Commission observes that the plea is
misconceived.
294. Section 3(1) of the Act prohibits any agreement with respect
to production, supply, distribution, storage, acquisition, or
control of goods or provision of services which causes or is likely
to cause an appreciable adverse effect on competition within
India. Further, section 3(2) of the Act provides that any
agreement in contravention of this provision shall be void.
295. The term ‘agreement’ itself is defined in section 2 (b) of the
Act. For felicity of reference, the same is quoted below:
Section2(b)."agreement" includes any arrangement or
understanding or action in concert,-
(i) whether or not, such arrangement, understanding or action is
formal or in writing; or
(ii) whether or not such arrangement, understanding or action is
intended to be enforceable by legal proceedings;
99
296. It may be noticed that the definition of the term ‘agreement’
as given in the Act includesany arrangement or understanding or
action in concert whether or not formalor in writing or is intended
to be enforceable by legal proceedings. Clearly, the definition
which is inclusive and not exhaustive is a wide one.
Theagreement does not necessarily have to be in the form of a
formal documentexecuted by the parties.
297. As is seen from the construct of the aforesaid provisions,
there is no need for an explicit agreement for existence of an
‘agreement’ within the meaning of the Act. The same can be
inferred from the intention or conduct of the parties. In the cases
of conspiracy or existence of any anti-competitive agreement,
proof of formal agreement may not be available and the same
may be established by circumstantial evidence alone. The
concurrence of parties or the consensus amongst them can,
therefore, be gathered from their common motive and concerted
conduct.
298. The Commission observes that existence of a written
agreement is not necessary to establish common understanding,
common design, common motive, common intent or commonality
of approach among the parties to an anti-competitive agreement.
These aspects may be established from the activities carried on
by them, from the objects sought to be achieved and evidence
gathered from the anterior and subsequent relevant
circumstances. Circumstantial evidence concerning the market
and the conduct of market participants may also establish an
anti-competitive agreement and suggest concerted action.
Parallel behavior in price or sales is indicative of a coordinated
behavior among participants in a market.
299. No doubt the parties to such an agreement may offer their
own sets of explanations behind the existence of circumstantial
evidence. The firms often tend to justify the parallel behavior in
prices, production, dispatch or supplies etc.by explaining the
100
fundamentals of the market forces such as demand, increasing
cost of production and other economic factors.
300. However, it also remains a fact that parties to an anti-
competitive agreement will not come out in open and reveal their
identity to be punished by the competition agencies. This is also
the reason that the legislature in its wisdom has made the
definition of ‘agreement’ inclusive and wide enough and not
restricted it only to documented and written agreement among
the parties. Thus, the Commission is not impeded from using
circumstantial evidences for making inquiries into act, conduct
and behaviour of market participants.
301. The Commission in light of the provisions of section 2(b) of
the Act as discussed aboveholds that in absence of any
documentary evidence of existence of an agreement, it is
appropriate and logical to inquire into cases of anti-competitive
agreements on the basis of existence of evidences which establish
that particular set of acts and conduct of the market participants
cannot be explained but for some sort of anti-competitive
agreement and action in concert among them.
302. The Commission observes that parallel behavior in prices,
dispatch, supply accompanied with some other factors indicating
coordinated behaviour among the firms may become a basis for
finding contravention or otherwise of the provisions relating to
anti-competitive agreement of the Act.
303. The competition agencies in other jurisdictions have also
taken cognizance of circumstantial evidences while inquiring and
establishing contravention in cases involving anti-competitive
agreements. While noting that the legal system/framework,
market structure, firm/consumer behavior etc. differs from
jurisdiction to jurisdiction, the Commission finds that the basic
101
competition principles are by and large applicable across
jurisdictions. Accordingly, looking at the position in other
jurisdictions, it is found that circumstantial evidences have been
used in the News Paper Cartel case (1999) of Brazil. Similarly, in
case of High Fructose Corn Syrup Antitrust Litigation of US,Atlantic
Sugar case of Canada Atl.,Sugar Refineries Co. v. A.G.Can.,
[1980], 2 S.C.R.644, circumstantial evidences were relied upon.
In Latvia- Hen’s eggs case also infringement was found based
upon circumstantial evidence.
304. It is noteworthy that OECD in its paper ‘Prosecuting Cartels
without Direct Evidence of Agreement’ (February 2006) has
observed as under:
“ Circumstantial evidence is of no less value than direct
evidence for it is the general rule that the law makes no
distinction between direct and circumstantial evidence …..….In
order to prove the conspiracy, it is not necessary for the
government to present proof of verbal or written agreement.”
305. It is no doubt true that as held by the Commission in
NeerajMalhotra case (supra), an agreement must be established
unequivocally. That however is not to suggest that an agreement
can be established only through direct evidence. As discussed
above, circumstantial evidence is of no less value than direct
evidence as the law makes no distinction between the two.
306. The Commission is not oblivious of the fact that the anti-
competitive conspiracies are often hatched in secrecy. The firms
engaged in anti-competitive activities are not likely to leave any
trace evidencing the same. Therefore, in absence of any direct
evidence of agreement among the conspirators, circumstantial
evidence is required to be looked into.
102
307. If direct evidences are not present, but circumstantial
evidences do indicate harm to the competition at a market place,
the Commission will certainly take cognizance of the same.
308. The Commission also observes that among set of
circumstantial evidences, evidences of communication among the
participants to an anti-competitive agreement may give an
important clue for establishing any contravention.
Communication evidences might prove that contravening parties
met and communicated with each other to determine their future
or present behaviour.
309. As noted earlier, for the purposes of the present
investigation, the DG, considering the commercial utility of truck
and bus tyre segment in transportation and public importance at
large, took into consideration the truck and bus tyres both cross
(or bias) and radial. However, with regard to the specific and
detailed study on cost of production, ex-factory price, price
parallelism etc., thefollowing LUG truck tyres were taken into
consideration for investigation:
Company Tyre (LUG)
Apollo 10.00-20 16 XT-7
Birla 10.00-20 16 PR Lug BT 112
MRF 10.00-20 SL 50 Plus N 16 Lug
Ceat 1000-20/16 HCL Super Lug
J . K. Tyre 1000.20 6 J TK Lug
Price Cost Trend Analysis
310. The price data for the period of 2005-2010 of the five
domestic tyre manufacturing companiesviz. MRF, J.K. Tyre,
Birla, Ceat& Apollo was analyzed.
311. It was noted by the DG that the major cost components
which affect the prices of tyres are the cost of natural rubber and
the excise duty. It was noted that the excise duty over the
investigation period has gone down from 16% to 10%.
103
312. It may be useful to note the excise duty changes as reflected
in the table below:
Excise Duty Movement
Year Exci se Duty
2004 16%
2005 16%
2006 16%
2007 16%
2008 14% (reduced to 10% from Dec. 2008)
2009 8%
2010 10%
313. With respect to another component viz. natural rubber, it
was noted that the tyre Industry is highly dependent on it which
accounts for 43% of the tyre production cost. Natural Rubber is
procured by domestic tyre manufacturers on daily basis and the
price of natural rubber fluctuates on daily basis. The weighted
average price of the natural rubber during the reference period is
shown below:
Weighted Average – Natural Rubber
Year Weight per/kg
2005 60/- per kg
2006 87/- per kg
2007 90/- per kg
2008 107/- per kg
2009 97/- per kg
2010 169/- per kg
314. On a careful examination of the above data, it appears that
during the investigation period, excise duty has shown a
downward trend and the natural rubber has increased in 2008
but has fallen in 2009 and then again increased in 2010. It was,
however, noted by the DG, as shown below, that during the
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investigation period the net dealer prices of all the domestic tyre
players have continuously increased except in 2009 wherein a
limited decline in prices was observed.
315. Accordingly, the DG has come to a conclusion that these
tyre companies have not passed on the benefit of reduction in
excise duty to the consumers. To buttress the conclusion,
reliance was also placed on the Tariff Commission findings on
Tyre Industry.
316. A grievance is made of the fact that the DG has made
general observations that tyre manufacturers have not passed on
the benefits of the decreased excise duty to the customers. It is
alleged that in complete contrast to the assertions/findings by
the DG, the parties have been passing on the benefits of excise
duty reductions in the best interests of its customers.
317. To examine the price movement for the specific Lug Tyre
segment of the five domestic tyre manufacturers under
investigation, the weighted average of the net dealer price, as
shown below, may be analyzed.
Net dealer price (weighted average) for the 5 specific LUG segment
318. The Commission on the price – cost analysis noted that major
cost components are not only Natural rubber and Excise duty, but
2005 2006 % change 2007 % change 2008 %
change
2009 %
change
2010 % change
Apollo 8717 9793 12.34 10364 5.83 10701 3.25 10309 -3.66 10640 3.21
Birla 8057 8968 11.30 9506 5.99 9789 2.97 9280 -5.19 10091 8.73
MRF 8461 8992 6.27 9465 5.26 9973 5.36 9792 -1.81 10475 6.97
CEAT 7880 8720 10.65 9180 5.27 9718 5.86 9161 -5.73 10660 16.36
J.K.
Tyre
7800 8904 14.15 9156 3.13 9612 4.98 9122 -5.10 10248 12.34
105
also NTC Fabric and Carbon black. In the absence of detailed
analysis of changes in total cost and resulting changes in prices, the
Commission does not agree with findings of DG that the benefit of
decline in excise duty and price of natural rubber has not been
passed on to the consumers. In fact, it is observed that the fall in
prices of Natural Rubber was marginal in 2009 while the rise was
substantial in 2010 and no proportionality in price changes can be
linked to the same in 2009 or 2010.
Price Parallelism
319. On perusal of the above data, it was deduced by the DGthat
the net dealer price (weighted average) of lug tyre in respect of all
the companies was more or less the same with marginal
difference in their price except Apollo Tyre. Further, it was
noticed that the movement of net dealer price (weighted average)
in terms of actual quantum as also percentage change was
similar. The percentage change of net dealer price whether
upward or downward was found to show close correlation
amongst the five tyres manufacturing companies. Based on the
above analysis, it was observed by the DG that price parallelism
existed amongst the five tyre manufacturing companies which
area good measure/indicator to show that some kind of
information sharing in price had taken place amongst them.
320. The Commission observes that differences in range of prices
of different manufacturershas been more than Rs.1000 for the
period 2005-2009 and the range has come down to Rs.600 in
2010.Considering that the product is homogeneous, the 6-
12%range of difference in prices imply that the prices are
dissimilar and there is no parallelism at least in absolute prices.
As far as parallelism of price movement in percentage terms is
concerned there are wide variations amongst various
manufacturers.As far as directional changes are concerned,
parallelism is observable.
106
321. The parties have sought to justify the price parallelism in
the tyre industry by pointing out the peculiar features of the tyre
industry. It has been highlighted that price parallelism in the
tyre industry arises on account of the fact that the products sold
are homogenous which makes it difficult for businesses to charge
different prices to customers. It is argued that products in the
tyre industry share similar sources of inputs, which means that
competitors are subject to similar cost fluctuations in setting
their product prices. Lastly, it has been contended that prices of
products in the tyre industry are highly visible, which allows
businesses to collect real time market intelligence and monitor
each other’s prices closely and match competitors’ price
movements.
322. The Commission carefully perused the submissions made
by the parties on this count. It may be observed that price
parallelism perse may not fall foul of the provisions of the Act.
However, if the same is the result of a concerted and coordinated
action under the aegis of trade association, then the same stands
covered within the purview of the Act. In this particular case, the
parallel pricing pattern is not very sound. However, now we shall
analyze if there are any plus factors to suggest that this limited
price parallelism is on account of concerted action.
323. The DG, has analyzed theseplus factors. TheDG made
elaborate analysis of data relating to production; capacity
utilization; cost analysis; cost of sales/sales realization/margin;
cost of production and natural price movement; net dealer price
& margin and market share, the Commission also considered
these factors.
Capacity Utilization Analysis
107
324. The DG also examined the capacity utilization of all the 5
major domestic tyre manufacturing companies and the details
thereof are noted below:
Capacity Utilization Movement
Company 2005-06 2006-07 2007-08 2008-09 2009-10
Utilization
%
Utilization
%
Utilization
%
Utilization
%
Utilization
%
Apollo 89% 89% 92% 87% 80%
Birla 90.74 89.83 97.67 81.59 104.57
MRF 74.7 79.27 82.13 80.85 89.04
Ceat 90% 91% 83% 75% 81%
J.K.Tyre 101% 92.6% 86.5% 85.1% 86.7%
From the above, it was deduced by the DG that the overall
capacity utilization of the tyre manufacturers have been showing
a downward trend and the utilized capacity has dropped down in
the case of major three companies viz. Apollo, Ceat and J.K.Tyre
except MRF & Birla from 2005 to 2010. In the case of Birla, the
variations in capacity utilization were noted as very high as it
dropped from around 97% to 81% in the year 2008-09 and then
drastically increased from 81% to 104% in the year 2009-10.In
J.K. Tyre, a drastic decline in the capacity utilization was noted
during the entire investigation period which reflects under-
utilization of capacity.
325. On behalf of Apollo and some other parties, the concept of
capacity available for production was introduced in the
arguments by the opposite parties. It was argued that capacity
utilization was relatable to the available capacity and this was the
correct measure and not the installed capacity. Impugning the
analysis of the DG relating to capacity utilization, it was pointed
108
out that the DG erred in its report by focusing on capacity
utilization and concluding the existence of a cartel based on
perceived low capacity utilization levels, without analyzing the
key variables that drive capacity utilization viz.capacity, demand
and production etc. Moreover, technical constraints relating to
operation of new capacity need to be factored into the calculation
of capacity utilization as alsowidely understood in the tyre
industry 100% of the installed capacity is rarely available for
production from the first year a plant is commissioned and even
thereafter. This is stated to be due to various issues such as lead
time (ramp-up) that is required by a plant to stabilize production,
maintenance (both scheduled and un-scheduled), labour unrests
etc.It has also been alleged that the DG has further ignored the
fact that there was global economic crisis in or around 2008-
2009 and the tyre industry was also adversely affected by the
same because of the reduced demand by original equipment
manufacturers i.e. automotive manufacturers and reduced
demand in the replacement segment. It is alleged that the DG has
drawn generalized reference to capacity utilization without
considering specific aspects of each company and why there are
movements in relation to the capacity utilization data. It is the
case of Apollo that its capacity utilization has been consistently
very high except for a short period in 2008-2009. It is alleged that
the DG has completely failed to take into consideration that the
lock-outs took place during the investigating period, thereby
grossly mischaracterizing Apollo’s capacity utilization.
326. The Commission has given thoughtful consideration to the
data on capacity utilization and plea raised by the parties. On a
closer examination of the data, the following observations are
made:
i) The trends are mixed: It is noticed that the capacity
utilization for some companies increase and others decrease on a
109
YoY basis. The fall in 2008-09 is in line with recession. Lack of
clear trend in figures suggest that variations in CU are company
specific and not necessarily due to any concerted action.
ii) The capacities have increased: The decrease in CU needs to
be read along with the increase in capacities. The CESTAT
ordercited by Michelin
4
observes:
…..The capacity has increased from 26270 MTs to 37636
MTs and the production has increased from 18622 MTs to
27364 MTs and therefore the capacity utilization has also
increased from 70.89% to 72.71%. However, the DA has
noted that despite growth in demand growth in production
has declined.
This highlights the increase in production has been muted
because of increase in capacity and not due to reduction of
output leading to supply suppression.
iii) The ICRA Report estimated on the basis of Company
announcements that the installed capacity is likely to go up by
47% from 2009-10 to 2012-13. The investments committed by
the companies negate the cartel theory as it does not seem
practical for companies to maintain a high ROCE when capital is
continuously increased.
327. It is also relevant to point out the observations made by the
Tribunal (CESTAT) in the appeal filed against the findings of DA
by Bridgestone, Michelin, Tata Motors Ltd. and two Chinese
companies. The Tribunal noted that during the period 2004-
2008, the sales by domestic industry increased 2.5 times. It was
also noted that during the same period imports increased from
1361 MTs to 28386 MTS. Thus, the demand was very high
during the said period. The turnover, profits and return of
capital of the domestic industry increased but the capacity
utilization was 72%. This is another testimony to the fact that
4
As submitted and annexed in DGs Report.
110
tyre manufacturers willful suppression of capacity does not make
any economic sense as the only beneficiary of the same will be
the importers unless it can be established that the tyre
manufacturers increased prices to such an extent that they
gained despite losing huge volumes to imports.
328. From the above analysis, the Commission concludes that
the tyre companies were not in a position to profit from limiting
the supply by willfulunderutilization of capacity.
Cost of Sales, Sales Realization and Margin
329. The DG made a detailed analysis of cost of sales, sales
realization and margin. It was noted that sales include cost of
production, selling and distribution cost, administrative
overheads, advertisement etc. Sales realization is the amount
received on sale of each unit. Margin indicates the profit or loss
realized on sale of the product. The analysis was done to get an
idea about the profitability or otherwise of sale of each product.
The following information regarding cost of sales, sales realization
and margin with respect to truck tyres was culled out from the
cost audit report:
Tyre Company UNIT YEAR
Cost of Sal es
( /Unit)
Sales Realization
( /Unit)
Difference
between Cost
of Sales and
Sales
Realization
(Margin in
/UNIT)
APOLLO TYRES Truck 2009-10 6852 7979 1127
APOLLO TYRES Truck 2008-09 7079 7826 747
APOLLO TYRES Truck 2007-08 6119 7085 966
APOLLO TYRES Truck 2006-07 6145 6790 645
APOLLO TYRES Truck 2005-06 5488.48 6118.7 630.22
J K TYRE Truck 2009-10 7208.2 7827.12 617.92
111
J K TYRE Truck 2007-09 (18
MONTHS)
7486.04 7562.61 76.57
J K TYRE Truck 2006-07 6498.41 6897.82 399.41
J K TYRE Truck 2005-06 6281.84 6319.28 37.44
J K TYRE Truck 2004-05 5838.03 5880.08 42.04
CEAT LTD Truck 2009-10 7509 7620 111
CEAT LTD Truck 2008-09 8179 7908 -270
CEAT LTD Truck 2007-08 6571 6922 351
CEAT LTD Truck 2006-07 6522 6645 122
CEAT LTD Truck 2005-06 5801 5903 102
MRF LIMITED Truck 2009-10 5379.47 5751.05 371.58
MRF LIMITED Truck 2008-09 4035.87 4346.17 310.3
MRF LIMITED Truck 2007-08 3678 3836.41 158.41
MRF LIMITED Truck 2006-07 3091.77 3288.16 196.39
BIRLA TYRES* Truck 2009-10 6891 6905 14
BIRLA TYRES* Truck 2008-09 7872 8164 292
BIRLA TYRES Truck 2007-08 6531 7125 594
BIRLA TYRES Truck 2006-07 6479 6928 449
BIRLA TYRES Truck 2005-06 5668 6039 371
* Refers to Balasore
unit only
330. Based on the analysis of the above information, it was
concluded by the DG that margins for Apollo tyres have been
showing a very healthy trend and it has reached the highest in
year 2009-10. In the case of JK Tyres, the margin has been
improving and has gone up drastically. The margin, which was
76 during 2009-10, has gone up to 617 in year 2009-10 which
112
is more than 8 times compared to previous year. In the case of
MRF, the margins have shown significant improvement in the
year 2008-09 and have further improved in 2009-10.In the case
of CEAT, it may be noted that in the 2009-10 the company was
able to improve its margins significantly from a negative margin
of Rs. 270 in the year 2008-09 to a positive margin of Rs.111 in
the year 2009-10.Birla Tyres has shown lower margin for 2009-
10 compared to previous year.
331. Considering the profit margin on the sale of each tyre, it
would be seen that for Apollo Tyres, the margin per tyre
increased from Rs.747/- to rs.1127/- in years under
consideration. Similar is the story of increase in margin of JK
Tyre where the margin increased from Rs.76.56 to Rs.607.92 per
tyre. However, in case of CEAT, it was selling its tyre at a loss in
the year 2008-09 and in the year 2009-10, it had a margin of
Rs.111/- per tyre, MRF margin in the year 2008-09 was Rs.310/-
in 2009-10, it was Rs.371/-, Birla Tyre had a margin of Rs.292/-
in 2008-09 and only Rs.14 in the year 2009-10. There is no
uniformity in the rise of margins of different companies. Birla
rather reduced its margin per tyre considerably and had been
selling at the lowest margin of Rs.14/- per tyre. The cost of Birla
Tyre was also lowest in the year 2009-10 being Rs.10091/-.
332. Similarly, the margin of CEAT was only Rs.111/- per tyre
which cannot be considered as excessive or exorbitant. The
margin of two companies was definitely higher than that of the
other companies but if we look at the different margins, it would
not give an impression of a concerted agreement among the
enterprises of forming a cartel. It is also noteworthy that Birla
had considerably reduced its margin from Rs.292/- to Rs.14/-
only. While CEAT seems to have got in red in the year 2009 and
started showing profit in the year 2010, JK Tyre was also working
at lower margin in the years 2007-09 of Rs.76.57 per tyre.
Looking at data regarding margins does not seem to suggest
meeting of minds on the part of different enterprises for fixing
prices.
113
333. In view of the above analysis, it may be noticed that the
cost of sales and sales realization have shown increasing trend
year after year. Different manufacturers are differently placed as
far as Net Margins are concerned. The bigger the range between
the margins of manufacturers, lower are the chances
ofsustaining a cartel.The companies with lower margins have no
incentive to collude and will but deviate. It is recognizedprices are
a function of number of factors including but not limited to cost
conditions, thus the Commission finds no merit in evaluating
whether the changes in Sales Realization are proportionate to
cost of sales or not. It cannot be concluded on the basis of the
above data relating to cost of sales, sales realization and margins
that there is any indication of concerted action.
Analysis of Net Dealer Price and Margin
NAME OF THE
COMPANY
YEAR NET
DEALER
PRICE ( )
%
CHANGE
MARGIN (Difference
between Cost of Sales and
Sales Realization)
/UNIT
APOLLO TYRES 2010 10640 3.2 1127
APOLLO TYRES 2009 10309 -3.6 747
APOLLO TYRES 2008 10701 3.25 966
APOLLO TYRES 2007 10364 5.8 645
APOLLO TYRES 2006 9793 630.22
JK TYRE & INDUSTRIES
LTD.
2010 10248 12.3 617.92
JK TYRE & INDUSTRIES
LTD
2009 9122 5 76.57
JK TYRE & INDUSTRIES
LTD
2008 9612 4.9 399.41
114
334. The DG also conducted the analysis of the Net Dealer Price
(Weighted average) of Lug truck tyres vis-à-vis the margin of each
of the five domestic companies under investigation and the same
may be noted below:
335. It was noted by the DG that the analysis of the Net Dealer
Price (Weighted average) of Lug truck tyres vis-à-vis the margin of
each of the five domestic companies under investigation showed a
significant increase in margins from 2006-2010. Thus, it was
concluded that all the companies have been operating on high
margins barring some exceptions as highlighted in the table
JK TYRE & INDUSTRIES
LTD
2007 9156 2.8 37.44
JK TYRE & INDUSTRIES
LTD
2006 8904 42.04
CEAT LTD 2010 10660 16 111
CEAT LTD 2009 9161 -5.7 -270
CEAT LTD 2008 9718 5.8 351
CEAT LTD 2007 9180 .5 122
CEAT LTD 2006 8720 102
MRF LIMITED 2010 10475 6.9 371.58
MRF LIMITED 2009 9792 -1.8 310.3
MRF LIMITED 2008 9973 5.3 158.41
MRF LIMITED 2007 9465 5.2 196.39
MRF LIMITED 2006 8992
BIRLA TYRES* 2010 10091 8.7 14
BIRLA TYRES* 2009 9280 5.1 292
BIRLA TYRES 2008 9789 2.9 594
BIRLA TYRES 2007 9506 5.9 449
BIRLA TYRES 2006 8968 371
* Refers to Balasore unit
only
115
above. It was also noted that the margins have increased from
42.04 to 617.92 in the case of J.K. Tyre which is an increase of
almost 15 times in a short span of 4 years. Similarly, in the case
of Apollo Tyres the margins have almost doubled in the last four
years.
336. Though the Commission believes that deciding on margins
being “excessive” is an inconclusive exercise, but in this case the
data anyways does not support the assertion of “excessive”
margins given that the margins in some cases are less than 1%
and the highest margin is around 10%, which cannot be called as
‘high’. Also, as pointed out earlier also, these substantial
differences in margins negate the possibility of a cartel as the
investigation in such cases need to show the benefit to cartel
members operating at such low margins.In view of the above
analysis, the Commission disagrees with the findings of the DG
on this count that these domestic tyre manufacturers have been
operating on large margins which did not appear to be passed on
to the consumers.
Higher Operating Profits and Return on Capital Employed (RoCE)
337. The Commission alsoconsidered the financials of the
opposite parties on all parameters duringthe period 2008-09 to
2009-10. The best indicators of profitability are the EBIDTA
Margin as % of Sales and Cash Flows from Operating Activities.
PBDITA net of Prior period & Extraordinary Items &Other Income &Financial
Income as % of sales
Name of the company
2005-
06
2006-
07
2007-
08
2008-
09
2009-
10
2010-
11
CEAT 4.40 6.30 7.90 1.50 10.50 3.60
MRF 6.10 9.00 7.70 11.50 10.30 7.60
Apollo 7.50 8.30 10.90 7.70 14.50 8.80
J K Tyres 5.00 5.30 7.90 5.30 10.20 4.90
Source: CMIE
338. As may be noted from the above table, EBDITA Margins
have ranged from a low of 1.50% of Sales to a high of 11.50% of
116
Sales. Though, there is a definite increase in operating
profitability in 2009-10 for all the companies (MRF follows the
October – September year for accounting and hence the trend is
blurred) which suggests more than proportionate increase in
prices as compared to cost of operations.
339. Similar observations can be made from Cash flow from
Operating Activities analysis.It is noticed that all the companies
(except MRF) almost doubled their cash inflows in 2009-10 over
2008-09. For MRF, the trend is reflected in 2008-09 because of
difference in accounting year. These cash flows again came down
to their normal levels in 2010-11. The Commission noted that
there is a definite blip in profitability and cash inflows which can
be read with other factors to reach some conclusions. But it is
equally important to note that the blip has been very short lived,
almost consistent with the period of ADD.
Net Cash Flows from Operating Activities (Rs. In Millions)
Name of the company
2005-
06
2006-
07
2007-
08
2008-
09
2009-
10
2010-
11
CEAT 554.00 1067.60 1392.00 1312.20 2326.80 1363.10
MRF 2748.60 3061.40 3290.90 9372.70 1860.50 6328.70
Apollo 794.00 3574.70 4277.70 3245.80 7026.60 1523.50
JK Tyres 859.00 466.40 1950.10 2663.50 5442.20 -212.60
Source: CMIE
Market Share
340. A comparative study of the market share was undertaken
for domestic tyre manufacturers. It is clear from the data that
Apollo, CEAT, Goodyear and JK have lost their market share
which has been gained by Birla. Birla’s market share is shown as
8.9% in 2005-06 and it has grown in 4 years to reach 19.74% in
2009-10. This is inconsistent with general cartel behavior where
market shares remain consistent through the years. Also, it is
against the rational business behavior to lose market share to a
rival in a cartel set up. Such trend in market share movement is
possible only in case of competitive environment.
117
Conduct of ATMA
341. As noted earlier, the tyre manufacturing firms have an
association under the name Automotive Tyre Manufacturers’
Association (ATMA) as the representative body of automotive tyre
industry in India. Eight large tyre companies including MRF, J K
Tyre, Birla, CEAT and Apollo representing over 90% of production
of tyres in the country are its members. The Association regularly
publishes data on production and export of various categories of
tyres. Besides, the Association prepares Status notes on various
subjects which are of relevance to tyre industry, such as, Tyre
Retreading Industry, Regional Trade Agreements & Rules of
Origin, Anti-Dumping, etc. Thus, it may be noticed that the firms
have an active trade association engaged in the above activities.
342. It was noted by the DG that ATMA which is an association
of domestic tyre manufactures acted as a close knit family. On
examination of the various minutes of the meetings held from
2005-2010, it was noted by the DG that the domestic tyre
manufactures were facing stiff competition from the imports
under the different tyre segments. On examination of the ATMA
circulars and minutes of the meeting, it was noted that ATMA
members have collectively adopted the various courses of action
which included: i) anti-dumpingpetitions;ii) low cost tyres; iii)
blacklisting of importers;iv) export realization andv) un-
remunerative prices from the supplies made to OEMs.
Anti-Dumping Action
343. DGnoted that tyre manufacturers under ATMA took various
actions by agreeing to support and cooperate in filing various
anti-dumping applications before the competent authority to
neutralize the competition faced by them from exporters based at
118
China and other countries. In this connection, the DG noted from
the minutes of ATMA that the ATMA Committee took serious note
of the rising trend in import of passenger car tyres into India,
particularly large scale import of cheaper tyres and dumping of
radial passenger car tyres, and advised ATMA
Secretariat to proceed with the filing of an anti-dumpingpetition
against such imports. It was brought to the attention of the
Committee that full cooperation of all ATMA member companies,
which manufacture passenger car tyres, was imperative for the
success of the case. All the members present assured support
and cooperation in filing anti-dumping application as petitioners
and by providing necessary inputs and cooperation in the said
proceedings.
344. Similarly, to thwart competition from import of Truck &Bus
Bias tyres, thedomestic tyre manufactures filed Anti-Dumping
petition. It was noted by the DG from the reply of ATMA that it
retained the services of a common advocate to file an Anti-
Dumping petition against import of Bias Truck &Bus tyres from
China. Members were informed that one round of discussions
has taken place between Cost Managers of select tyre companies
and the advocate. The advocate had desired Marketing, Cost and
Financial data, as per format circulated through ATMA, to be
completed by three member companies viz. Apollo, Ceat and JK
to be forwarded directly to the advocate so that the application
could be processed.
345. In this connection, it is significant to note that the advocate
inter alia advised a meeting of Cost Managers of ATMA member
companies with him to ensure uniformity of data and format in
which it is to be presented. Subsequently, the domestic tyre
manufacturers filed an anti-dumping petition under the Bias
segment.
346. With the increase in radialization of tyres under the car and
trucks/ bus segment, domestic tyre manufactures again felt the
119
heat on account of imports of radial tyres from the global market.
Accordingly, in order to evade competition and protect
themselves, the domestic tyre manufactures again filed anti-
dumping petition under the radial category also so as to increase
the import cost to consumers as well as OEMs.
347. ATMA sought to clarify the above conduct by submitting
that the Anti-Dumping petition involved furnishing extensive
information/data in a prescribed format as per the anti-dumping
rules and provisions. It was also stated that even the anti-
dumping application performa requiredthe petitioner to compile
the information to the extent possible. It was also clarified that
cost data being highly confidential in nature, were directly
submitted by the concerned tyre companies to the advocate for
onward submission to directorate of anti-dumping after
aggregation, analysis etc.None of the tyre companies was privy to
the confidential costing data submitted by the other tyre
companies in such proceedings, submitted ATMA.The
Commission considered the findings of DG and submissions of
ATMA and concluded that the lobbying for welfare of tyre
industry is the prime objective of ATMA and the same cannot be
viewed as anti-competitive. The discussion and joint application
for levy of anti-dumping duty also seem necessitated, given the
procedure specified. Moreover since the costing data was
confidential to each company the possibility of sharing such
sensitive information is most unlikely.
Low Cost tyre strategy
348. As members of ATMAdomestic tyre manufacturers adopted
the collective strategy of launching the lower priced tyres to
effectively compete with the Chinese truck tyre imports.
349. In this connection, ATMA stated that in view of the rising
volume of dumped/low priced truck and bus tyres from
China,the Indian tyre manufacturers had considered the option
120
of introducing lower weight and hence low priced truck and bus
tyres as a pro- competitive measure to meet Chinese competition
on account of the ‘tyres with lower weight’ being dumped into the
country.
350. The Commission noted that the strategy of introducing low
weight low cost tyres to meet the competition and agrees with
submissions of OP’s to that effect. The fact that the strategy was
collective may again be used to infer meeting of minds but there
is nothing anti-competitive in it.
Collectively black-listing the Importers
351. Based on the analysis conducted by the DG, it may be
observed that the tyre companies under the aegis of ATMA also
decided to take measures resulting in collective black-listing of
the importers. It may be noted that the Committee members of
ATMA took note of the discussions that had earlier taken place in
a meeting of Marketing Group regarding under-valued/under
invoiced import of tyres, particularly in the Truck Bias, Truck
Radial and Passenger Car Radial segments. The Committee
advised that, as in the past, ATMA Secretariat should take up the
issue with Customs Authority for Redressal. It was also stated
that the angle of revenue loss to the Government should be
adequately projected.
352. It may further be noted that the Committee also advised the
Marketing Group to evolve appropriate strategy so that sale of
under-valued/under-invoiced tyres could be checked at the retail
level with the involvement of local State sales tax authorities. It
was decided at the meeting that all the tyre companies should
collectively co-ordinate for initiating the line of action and the
following four geographical areas and tyre companies which could
take lead in this direction were notified as follows:
121
a) Delhi (Apollo)
b) Mumbai (Ceat)
c) Vijaywada (tyre company name to be confirmed)
d) Indore (JK Tyre)
353. The four locations were short-listed since these were
understood to be focal points where sale of under-
invoiced/under-valued truck & bus tyres-bias and radial-was
rampant. Based on the effectiveness of action plan in these
areas, it was decided that the same could be replicated at an all
India level. Moreover, it was also decided that similar strategy
could be adopted in the case of grey market imports of MNC
brands in the passenger car tyre segment. Convener, Marketing
Group was advised to have a meeting of Marketing
representatives, immediately following the Managing Committee
meeting, to evolve an appropriate strategy to check the
malpractices, including black listing, by tyre companies, of
importers indulging in such imports, particularly if they were
having dealings with Indian tyre companies also.
354. ATMA sought to clarify that the whole intent was to assist
the concerned custom authority to track such undervalued/
under invoiced imports at major trucking centres and at ports.
The intent was to ensure that importers do not find ways and
means of circumventing the duty imposed and to check for
undervalued and under invoiced imports.
355. The Commission noted the findings of DG and submissions
of OPs. The Association’s concern for undervalued/under
invoiced imports is genuine and their collective decision to assist
the authorities is in the direction of ensuring fair play in markets.
Export Realizations
122
356. ATMA member companies have undertaken discussion on
the issue of export realization. The members of ATMA collectively
discussed the issue about the feasibility of increasing the average
realization on exports from minimum Freight on Board (FoB)
value of US $2.25/kg to a higher level. It may be noted that
ATMA Export Forum has discussed the issue of export
realization. However, considering the current market conditions
and intense competition from China particularly in the
Radial/Bias T&B tyre category, any major increase in average
export realization in some categories, especially Bias T&B tyres,
was not found feasible.
Unremunerative prices from the supplies made to OEMs
357. The issue of unremunerative prices realized from the
supplies made to OEMs is noted as also another area of
discussion among the member companies. The domestic tyre
companies have discussed the issue of OEM prices vis-à-vis.
input cost. Consistent rise in input costs in recent months was a
major concerns for tyre companies.
358. Thus it may be noted that the discussions centered on un-
remunerative prices realized from OEMs due to absence of
corresponding increase in price of end product. There was a
general consensus that truck and bus tyres supplied to vehicle
manufacturers were at unsustainable prices, particularly in view
of hike in inputs costs.
359. ATMA sought to justify the aforesaid discussion by arguing
that the remarks in the meetings under reference were general
observations made in the context of the increase in input costs
and price for OEMs supplies. ATMAalsopointed out that the DG
in its report has failed to appreciate the critical fact that none of
the actionsviz. Anti-Dumping Petition; Low Cost Tyres Strategy;
Blacklisting Importers; Export Realization; Supply of Tyres to
123
OEMsundertaken by ATMA was aimed at determining the
individual conduct of any of its members. It has been further
submitted that the abovementioned steps/ activities are in line
with the roles and responsibilities of an association such as
ATMA i.e. representing an industry group. It is argued that if the
logic adopted by the DG in its report is accepted by the
Commission, it would lead to an untenable situation where trade
associations representing the interests of an industry group, will
be barred from adopting any measure necessary to protect the
interests of the concerned industry. Lastly, it is asserted that
forming a trade association per se is not anti-competitive in any
manner.
The Commission carefully examined the submissions made by
ATMA. The Commission agrees with ATMA that the trade
associations may adopt the measures, which are necessary to
protect the interests of the members. However, the decisions
should not be in contravention of the Competition Act. The
Commission noted that the activities of ATMA may thus be
described as lobbying as far as anti-dumping duty issue is
concerned. The discussions and conduct on other allegations is
general and is not in contravention of the Act.This conclusion is
based after a careful perusal of the minutes of the ATMA
meetings. A few of the minutes are given below.
360. The minutes of MC meeting of ATMA held in April, 2005
recorded the following items:
Item 4.2: There was a general consensus that truck and bus
tyres supplied to OE’s (vehicle manufacturers) were at
unsustainable prices, particularly in view of hike in input costs.
Marketing group was advised to address this issue in its next
meeting.
Item 5: Chairman ATMA suggested that in view of the fact that
since the volume of such imports had stabilized, tyre companies
may like to review their earlier strategy of bringing out lower
124
priced tyres to effectively compete with Chinese truck tyre
imports.
361. The draft minutes of MC meeting of ATMA held in July,
2005 recorded the following items:
Item 5: Members were informed that one round of discussions
has taken place between cost managers of select tyre companies
and the advocate. The advocate had desired marketing, cost and
financial data, as per the format circulated through ATMA to be
completed by three member companies (Apollo, CEAT and JK) to
be forwarded..
362. The draft minutes of MC meeting of ATMA held in May,
2006 recorded as follows:
Item 3: …MC decided that ATMA members would import 52,000
MT of natural rubber which is 12% of consumption of tyre
industry between Jan and Dec 06.
……It was felt that in view of the steep increase in the price of
natural rubber and further increase anticipated, tyre companies
should intensely look into the feasibility of increasing
consumption of synthetic rubbers in place of natural rubbers.
Item No. 4: Tyre Export: The need to increase export realization
was stressed by members of the MC. A view was expressed that
tyre companies should look for minimum FOB value of US
$2.25/KG in export.
363. Action Taken Statement in the MC meeting of ATMA held in
August, 2006 recorded the following issues:
Issue 1: monthly import level of NR by each tyre company be
collected by ATMA secretariat and circulated to MDS.
Action taken: Latest information on NR imports compiled and
circulated to MDs for information.
125
Issue 9: ATMA to constitute a core group to work out demand
projections of tyres for the next 5 years.
Action taken: core group constituted by ATMA. Two meetings of
the core group held….preliminary work has been initiated and
findings brought to the attention of marketing group.
364. Action Taken Statement in the MC meeting of ATMA held in
January, 2010 recorded the following issues:
Item 7: Tyre Demand Projection…….As per the decision of the
ATMA marketing group, ATMA has initiated a detailed study on
tyre demand projection, for major tyre categories for the next 5-6
years….
Item 9: ETRMA has suggested to ATMA to share on a reciprocal
basis tyre production data of their respective member companies
at the level of ETRMA and ATMA.
For consideration and decision by the committee.
365. In view of the above and taking into consideration the act
and conduct of the tyre companies/ ATMA, it is safe to conclude
that on a superficial basis the industry displays some
characteristics of a cartel there has been no substantative
evidence of the existence of a cartel. As a tradable the industry
has always been open to competitive threats from imports. The
Commission holds that the available evidence does not give
enough proof that tyre companies/ ATMAacting together have
limited and controlled the production and price of tyres in the
market in India.
126
Order
366. The Commission has found that there is not sufficient
evidence to hold a violation bythe tyrecompanies Apollo, MRF,
J.K. Tyre, Birla,Ceat and ATMA of the provisions of section 3(3)
(a) and 3(3)(b) read with section 3(1) of the Act.
367. The Secretary is directed to communicate this order as per
regulations to all the parties.
sd/-
(H.C Gupta)
(Member)
sd/-
(Geeta Gouri)
(Member)
sd/-
(M. L. Tayal)
(Member)
sd/-
(S.N.Dhingra)
(Member)
sd/-
Ashok Chawla
(Chairperson)
doc_594348915.pdf